Company Bankruptcies Are Rising Again. Employees Need to Know Where They Stand in Line.

By Steven C. Fraser, Esq. | FL Bar No. 625825 | DC Bar No. 460026

Business bankruptcy is back in the news because the numbers are moving in the wrong direction.

For the twelve-month period ending March 31, 2026, the Administrative Office of the U.S. Courts reported 591,850 total bankruptcy filings, up from 529,080 a year earlier. Business filings rose from 23,309 to 25,960, an 11.4% increase. Total Chapter 11 filings rose from 8,844 to 9,941 over the same period.

That is the official court system view. The commercial-market view is even sharper. Epiq AACER data reported by ABI showed 8,436 commercial filings in the first quarter of 2026, up 14% from the first quarter of 2025. Commercial Chapter 11 filings rose 37%, from 1,764 to 2,422. Subchapter V small-business elections rose 67%, from 499 to 833.

Large-company bankruptcies tell the same story with a different filter. S&P Global Market Intelligence reported that major U.S. corporate bankruptcies fell to 50 in April 2026 from 70 in March, but that still left 229 filings through the first four months of 2026.

The point is not panic. The point is timing. When a company enters bankruptcy, the employees who are owed wages, commissions, severance, or benefit contributions are suddenly part of a federal priority system most of them have never seen before.

And the hard truth is this: being morally first does not mean being legally first.

The Bankruptcy Filing Trend

MeasureRecent figureWhy it matters
Total bankruptcy filings, year ending March 31, 2026591,850Filings have increased each quarter since the June 2022 low
Business bankruptcy filings, same period25,960Up 11.4% year over year
Total Chapter 11 filings, same period9,941Chapter 11 activity continues to climb
Q1 2026 commercial filings8,436Up 14% from Q1 2025
Q1 2026 commercial Chapter 11 filings2,422Up 37% from Q1 2025
Q1 2026 Subchapter V elections833Up 67% from Q1 2025
Major corporate bankruptcies through April 2026229S&P's large-company dataset remains active despite an April slowdown

Those numbers matter because bankruptcy is not only a creditor event. It is a labor event. A company's filing date can change whether a worker's claim is treated as a post-petition administrative expense, a capped priority wage claim, a benefit-plan contribution claim, or an ordinary unsecured claim sitting near the bottom of the stack.

That classification can be the difference between meaningful recovery and a paper claim that never pays.

Where Employees Stand in the Payment Line

The 2019 Congressional Research Service Legal Sidebar that prompted this post focused on a deceptively simple question: what happens to employee claims when a business declares bankruptcy?

The answer starts with the Bankruptcy Code's priority structure.

Secured creditors usually come first against their collateral. If a lender has a valid lien on aircraft, vehicles, inventory, equipment, receivables, or real estate, that collateral is not treated like a general pool of money for everyone. The secured creditor has property-specific rights.

After that, unsecured claims are not all equal. Congress has given some unsecured claims priority over others. Employee claims can matter at several levels:

Administrative expenses. Wages, salaries, or commissions earned after the bankruptcy case begins may qualify as administrative expenses if they are actual and necessary costs of preserving the estate. These claims generally sit very high in the payment structure.

Pre-bankruptcy wages, salaries, commissions, and severance. Section 507(a)(4) gives priority to certain employee compensation earned within 180 days before the filing date or business shutdown, whichever occurred first. For cases filed on or after April 1, 2025, the capped priority amount is $17,150 per employee.

Employee benefit contributions. Section 507(a)(5) gives similar priority treatment to certain employee benefit plan contributions tied to services rendered within the same 180-day window. The current cap is also $17,150, subject to the statutory formula.

Everything else. Claims that do not fit into a priority category may fall into the general unsecured class. That can include amounts above the cap, older claims, or claims that do not meet the statute's timing and category requirements.

This is where employees are often shocked. They hear "priority wage claim" and assume every unpaid dollar is protected. It is not. Priority treatment is powerful, but it is capped, date-sensitive, and category-specific.

Chapter 7 and Chapter 11 Do Not Feel the Same to Workers

In a business Chapter 7, the company is being liquidated. A trustee collects and sells assets, then distributes proceeds according to the Bankruptcy Code's waterfall. If there is not enough money to pay a priority tier in full, creditors in that tier generally share pro rata, and lower tiers may receive nothing.

In Chapter 11, the company is trying to reorganize, sell itself as a going concern, or conduct an orderly wind-down under court supervision. Priority claims matter differently because a plan generally cannot be confirmed unless certain priority claims receive required treatment. Administrative expense claims are especially important because vendors, employees, and professionals will not keep working for a debtor if the bankruptcy system cannot protect post-filing obligations.

For workers, the practical questions are immediate:

Those questions determine more than vocabulary. They determine leverage.

Spirit Was the Human Version of the Chart

I recently wrote about the Spirit Airlines collapse and wind-down because it showed what business distress looks like when abstract bankruptcy vocabulary turns into paychecks, jobs, retention bonuses, WARN Act questions, asset sales, and creditor recovery fights.

Spirit was not just a balance-sheet story. It was a workforce story. When a company with thousands of workers falls into a second bankruptcy or wind-down, every legal category becomes concrete:

That is why the current rise in commercial bankruptcy filings matters. The filing count is not just a number. It is a warning that more employees, vendors, landlords, lenders, and customers are going to be forced into the bankruptcy priority system.

The Dangerous Myth: "The Court Will Make Sure Employees Get Paid First"

Bankruptcy courts care deeply about lawful process, but they do not rewrite the priority system because a result feels unfair. The Code has a hierarchy. Judges enforce it.

Employees receive specific protections, but not unlimited protection. Congress could move workers higher in the line, increase or eliminate caps, change the 180-day lookback period, or create new categories of employee priority claims. Those are policy choices. They are not automatic features of the current system.

And every policy choice has a tradeoff. Moving employees higher can reduce recoveries for other creditors, including taxing authorities, trade vendors, customers, tort claimants, and unsecured lenders. Requiring broader cash payment of worker claims in Chapter 11 could protect employees in some cases, but it could also make some reorganizations harder to confirm.

That is the bankruptcy tension: fairness to workers, preservation of going-concern value, and creditor recovery do not always point in the same direction.

What Workers Should Preserve Immediately

When an employer appears financially distressed, workers should not wait for the bankruptcy filing to reconstruct their records. The best evidence is often ordinary payroll evidence kept before the company becomes chaotic.

Preserve:

The less dramatic truth is the useful one: in bankruptcy, documentation beats memory.

What Business Owners Should See Coming

For business owners, the rising filing statistics should not be read as background noise. If payroll, tax deposits, employee benefits, rent, secured debt, and vendor obligations are all being stretched at once, the company is already in a priority-allocation problem even before a petition is filed.

The filing date will not make the problem disappear. It will formalize it.

That means management should understand, before filing:

A Chapter 11 case that cannot pay post-petition obligations is not a reorganization strategy. It is usually a liquidity failure with a case number.

The Bottom Line

Company bankruptcies are rising again. That does not mean every distressed business is doomed, or that every worker at a distressed company is unprotected. It does mean more people are going to learn the bankruptcy priority system the hard way.

Employees are protected, but not absolutely. Wage and benefit claims can receive priority, but only within statutory categories, timing rules, and caps. Secured creditors still matter. Administrative expenses still matter. Chapter 7 and Chapter 11 still produce very different practical realities.

The unspoken truth is that bankruptcy does not ask who deserves to be paid first. It asks who is legally entitled to be paid first.

That is a colder question. But it is the question the system actually answers.

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