A significant rise in small business bankruptcies across the United States is raising alarms about a potential recession. According to experts, the surge in closures among mom-and-pop shops, small restaurants, and local retailers is a troubling indicator of economic instability. Joe Barsalona, a bankruptcy lawyer based in Delaware, noted that this trend could be an early warning signal, stating, “The little guys are going to start falling first. A recession is coming.”
Small business owners are grappling with multiple challenges, including escalating rent prices and increased costs for goods. As cash-strapped consumers turn to larger retailers like Walmart and Amazon for cheaper alternatives, many local businesses find it increasingly difficult to compete. Kelly Vore, who recently closed her 119-year-old shop, commented, “Our formula was always snug — we were never rolling in abundant cash. Everything is just much more expensive than when I took over.”
Record Bankruptcy Filings and Economic Concerns
The trend of small business bankruptcies is underscored by the rising number of Subchapter V filings, a restructuring program designed for companies with debts below $3.4 million. According to analysis from The Kobeissi Letter, as of early December 2025, there were 2,221 Subchapter V bankruptcies filed, surpassing the total of 2,211 from all of 2024, even with weeks remaining in the year. While these figures represent a small fraction of the approximately 33 million small businesses in the U.S., the acceleration in filings is particularly concerning.
The second half of 2025 has seen a notable increase in bankruptcies, with around 200 small businesses entering bankruptcy court in August alone. This marked a 17 percent increase compared to the same month the previous year. Barsalona emphasized the effectiveness of Subchapter V for struggling small businesses, as it is usually less costly than Chapter 11 filings and allows founders to maintain control. However, he warns that this trend could lead to a broader economic downturn, stating, “When enough of them start going under, the stress eventually spreads to larger companies. We’re likely just seeing the beginning of that process.”
Polls conducted by the U.S. Chamber of Commerce reveal growing pessimism among small business owners regarding the economic landscape. In the last quarter, they rated the economy at 68.4 out of 100, a decline from the previous rating of 72. The percentage of owners who described their financial health as “very good” fell to 34 percent, while those rating their finances as “somewhat poor” increased from 6 percent to 7 percent.
Widening Economic Divide
The latest bankruptcy data highlights a stark contrast in the economic realities faced by small businesses compared to larger corporations. While small businesses are increasingly seeking court protection, larger companies appear to be faring better. Research from Coresight indicates that only 30 major companies filed for Chapter 11 bankruptcy in 2025, a decrease from 51 in the previous year. This suggests that while some companies are thriving, many smaller operators are being quietly driven out of the market.
Tayne, a debt resolution attorney, pointed out that as costs for goods continue to rise, small businesses struggle to increase prices without upsetting customers, which ultimately affects their profitability. “Business owners pour their heart and soul into their business, and often have trouble stomaching financial turmoil arising,” she stated.
Despite the alarming rise in bankruptcies, economists caution against drawing direct comparisons to past economic crises. During the 2008 financial meltdown, over 43,000 businesses of all sizes filed for bankruptcy within a single year, with approximately 1.8 million businesses ultimately closing in the ensuing two years.
The Small Business Administration (SBA) noted that under the current administration, the number of small businesses in America reached a historic high of 36 million. However, the SBA did not address the ongoing increase in small business bankruptcies in its comments.
For the owners facing the harsh reality of shutting their doors, these historical comparisons offer little solace. The struggle on Main Street underscores a broader economic divide, where local businesses feel the pinch while larger corporations continue to thrive. For many, the recession is not a distant possibility but a present reality.
