Recent headlines have painted a concerning picture of American Main Street, suggesting a wave of small business failures. Data from Epiq Bankruptcy Analytics shows that filings under a special bankruptcy provision for small firms reached a new peak in 2025. However, a closer examination of the figures reveals a far more nuanced and surprisingly positive reality for the nation's entrepreneurs.
The 'Record' Numbers in Context
According to the data, 2,221 small businesses filed for bankruptcy protection under subchapter V in 2025. This specific section of the bankruptcy code was established in 2019 to streamline the process for smaller enterprises. The figure represents an increase from the previous year, a fact that has sparked considerable debate. However, the year-on-year rise was just ten cases, moving from 2,211 filings in 2024.
When viewed against the broader backdrop of the US economy, this so-called historic high becomes almost negligible. The US Small Business Administration estimates there are over 33 million small businesses operating across the country. Within that vast landscape, 2,221 bankruptcies constitute a minuscule percentage, highlighting the resilience of the sector.
A Longer-Term View of Business Insolvency
Analysing trends over a longer period provides essential context. Between 2020 and 2023, the average number of subchapter V filings was approximately 1,379 annually. The gradual increase towards 2025 can partly be attributed to greater awareness and utilisation of the legal framework itself, rather than a sudden surge in distress.
Furthermore, even when considering all business bankruptcies regardless of size, the situation remains stable. Filings at the end of the Biden administration in 2024 were more than 25% higher than when President Biden took office, with the pandemic's impact being a significant factor. Yet, crucially, these numbers were still 25-50% lower than the averages seen between 2009 and 2019, a pattern that continued into 2025.
Why Aren't More Failing Businesses Filing for Bankruptcy?
This data prompts a compelling question: given the well-known statistic that around 70% of startups fail within five years, and given a historic boom in new business applications since 2019, why aren't bankruptcy filings significantly higher? The answer lies in the practical realities of small business closure.
For most mom-and-pop operations and startups, formal bankruptcy is a rare path. When a small venture fails, owners often simply cease trading and walk away. The costs and legal complexity of bankruptcy proceedings are frequently seen as an unnecessary expense. Creditors and suppliers to these small entities typically write off the losses as a cost of doing business rather than pursuing lengthy recovery actions.
This pragmatic approach means that the official bankruptcy figures capture only a fraction of actual business closures, skewing the perception of sector-wide health.
Prevailing Optimism in the Small Business Sector
Contrary to the narrative of widespread distress, most indicators point to a robust and optimistic small business environment. Surveys from major institutions reflect this confidence. The National Federation of Independent Businesses reports that optimism levels are above its 52-year historical average. Similarly, Comerica Bank found that 79% of small businesses anticipate revenue growth in the coming year, and the US Chamber of Commerce notes high confidence among its members for 2026.
The period from 2019 to 2024 witnessed an unprecedented surge in new business applications, with over 21 million submissions. This entrepreneurial energy, fueled in part by a boom in 'side-hustle' activity, suggests a dynamic and adaptive economy rather than one in crisis.
In conclusion, while the headline figure of 2,221 small business bankruptcies in 2025 is technically accurate, it is profoundly misleading without proper context. The number is statistically insignificant within the vast universe of US small businesses and remains low by historical standards. The evidence points to a sector characterised by remarkable resilience, continued creation, and widespread optimism for the future.
