Are rising bankruptcies a concern for banks’ 2Q earnings?

• Key insight: Higher numbers of bankruptcy filings may be an indicator that small businesses are feeling increasing stress amid relatively high interest rates and inflation.
• Supporting data: The number of filings under a part of the bankruptcy code that small businesses frequently use to reorganize their debts was 50% higher during the first six months of 2026 than it was during the same period last year.
• Expert quote: “Main Street businesses, the smaller businesses in the country, are really struggling.” — Christopher Ward, board chair at the American Bankruptcy Institute

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Earnings season kicks off Tuesday amid a hefty rise in bankruptcy filings, making credit quality an area to watch.

Between Jan. 1 and June 30, total bankruptcy filings climbed 12% over the same period a year earlier, according to the data provider Epiq AACER. The increase was particularly steep for filings under a portion of the bankruptcy code that small businesses frequently use to reorganize their debts. Those subchapter V filings were up by 50% during the first six months of 2026, per Epiq AACER.

“I think that shows that the Main Street businesses, the smaller businesses in the country, are really struggling,” Christopher Ward, a partner at the law firm Lowenstein Sandler, who is also board chair at the American Bankruptcy Institute, told American Banker.

He continued: “Given where we’re at with this economy, and the fact that we have a war that’s going on, we have higher interest rates that continue to be out there and have not gone down as most people predicted, we have inflation as a result of that, it’s really starting to affect the small and mid-market right now.”

During the first half of 2026, individual bankruptcy filings rose by 12%, in line with the trend for all bankruptcy filings, according to Epiq AACER.

“On the consumer side, we’re seeing signs of strain in key areas: auto delinquencies remain near multi-year highs, foreclosure activity has risen notably, and credit card balances and other debt obligations continue to drive individuals to chapter 7 and chapter 13 relief,” Michael Hunter, vice president at Epiq AACER, said in a press release.

Still, the rising volume of bankruptcy filings isn’t cause for alarm at banks, experts said. They noted that for years, the prevalence of those bankruptcy cases had been depressed by the U.S. government’s efforts to inject cash into the economy during the COVID-19 pandemic.

“I think what we’re seeing is the market is just getting back to where it was prior to 2020,” Ward said. “I think we’re just back to normal levels of Chapter 11 filings from the pre-pandemic era.”

Christopher Marinac, an analyst who covers banks at Brean Capital, projects that bankruptcy filings this year, including both individual and corporate bankruptcies, will total 626,000.

That number is actually down from 775,000 bankruptcy filings in 2019 and from 1.2 million in 2012, despite the fact that the numbers have been rising in recent years, Marinac noted.

He calculates that if the change from 2025 to 2026 persists, it will take 2.5 years to reach the level of bankruptcy filings in 2019. There’s also the fact that the number of businesses and individuals in the U.S. has been rising, Marinac noted.

“Try to put things on an equal footing over time, and I just think the percentage of the population who’s bankrupt is still low,” Marinac said. 

Still, if the number of U.S. bankruptcies keeps rising, what matters is whether banks are setting adequate provisions for losses. In the first quarter of 2026, noncurrent loan balances rose by $4.4 billion, outpacing a $1.6 billion increase in the allowance for credit losses, according to data compiled by the Federal Deposit Insurance Corp.

Nonetheless, Marinac said: “I think it’s a very addressable risk, and the banks who do consumer lending, which primarily are the big national players who are big in cards, for example, or big in auto, they’ve got a lot of earnings today. And if they get a couple surprises on consumer credit that they’re not talking to us about, they can handle it.” 

“The stocks will have to adjust if you have that scenario,” he added, “but I think they’ve got plenty of earnings and plenty of reserves.”

Second-quarter earnings season begins Tuesday with JPMorganChase, Bank of America, Wells Fargo, Citi and Goldman Sachs all scheduled to report. They will be followed on Wednesday by Morgan Stanley, PNC Financial Services Group, the Bank of New York Mellon and M&T Bank.