More Small Businesses Are Choosing Reorganization. Can They Fund It?

The November 6 report from Epiq and the American Bankruptcy Institute recorded 280 Subchapter V elections in October 2026, up from 225 a year earlier. That is a 24% increase in businesses choosing this small-business Chapter 11 process.

The broader numbers moved the other way. Overall commercial bankruptcy filings fell 4%, from 2,863 to 2,762. Commercial Chapter 11 filings fell 2%, from 634 to 624. These are October-to-October comparisons, not year-to-date totals, and Subchapter V elections sit within Chapter 11. They should not be added to the other counts.

So this is not a story about every measure of business bankruptcy rising together. More businesses elected one reorganization process. The numbers do not tell us how many will complete a plan, why each filed, or whether that process would work for a particular company.

The U.S. Courts’ Chapter 11 overview describes Subchapter V as a process designed to streamline reorganization for eligible small-business debtors. It still involves court oversight, a trustee, financial reporting, and a plan. Eligibility and the rules that apply should be checked with bankruptcy counsel before anyone builds a strategy around it.

From a business perspective, the first question is what the company would look like after a restructuring. Which customers would stay? Which products or services cover their costs? What spending could actually change, and how soon? A plan that works only if sales jump next quarter deserves a different conversation from one supported by existing orders and achievable savings.

It helps to separate the operating problem from the financing problem. A useful business may be carrying debt it cannot support. Another may lose money on its core work even before debt service. Both can be short of cash, but extending repayment dates alone will not fix the second problem. Management needs to show what would change in the operation itself.

A business can look viable after a restructuring and still run out of money getting there. Employees need to be paid. Insurance, systems, and essential supplies may need to remain in place. Professional work and the restructuring process itself also need a budget. The amount and timing depend on the company and the route it chooses.

Ask for a weekly cash forecast covering the expected transition, with enough detail to see the lowest projected balance. Include ordinary operating costs, the proposed changes, and the process costs estimated by the professionals involved. If a saving depends on an agreement, approval, or completed transaction, show the date and condition rather than assuming it happens immediately.

Then identify the source for each funding gap. Is it cash the company is permitted to use, collections supported by current customer information, committed financing, or money someone still needs to approve? Those categories should be visible separately. Counsel should confirm any restrictions on cash use and any lender consent or court approval required.

This is also the moment to check the terms of a credit line. Don’t assume an existing facility will remain available on the same terms through a restructuring, or that a new lender will fund because the forecast needs it. Get the financing assumptions reviewed before treating them as part of the solution.

The filing statistics are a useful reason to have the discussion. They cannot make the decision. Before choosing a path, put three questions in front of the people responsible for the business and its finances:

• What specifically improves? Identify the operating changes or revised obligations the plan depends on, along with who must agree and what happens if they do not.
• How is the transition funded? Name the available funds, restrictions, expected receipts, and costs. Show what happens if collections arrive later or the process takes longer.
• When do we reconsider? Agree on a review date and developments that would require a different plan, with enough time to evaluate that alternative before cash is exhausted.

Those questions belong alongside the cash assumptions behind next year’s budget. A proposed reorganization should be tested against the same actual collections, margins, and spending that management uses to run the business today.

If continued operation cannot be supported, the discussion may need to include a sale or an orderly wind-down. When comparing an ABC with Chapter 7 and Chapter 11, evaluate what each route can accomplish, the funds and approvals it needs, and the risks of delay with the company’s advisors. A rising filing count is not a reason to choose any one of them.

October’s increase in Subchapter V elections puts small-business reorganization back in focus. Our takeaway is to do the operating and funding work early enough that the choice is still meaningful.

A credible plan explains what can survive, what has to change, and how the business pays its way through the transition. If one of those answers is missing, finding it now gives the people involved more time to negotiate, revise the plan, or consider another route. The decision should follow the company’s facts, not the direction of a national statistic.