March 24, 2025
Business bankruptcies spike in CT as uncertainty hovers over economy
HBJ PHOTO | MICHAEL PUFFER
Roy Filkoff is a partner and business turnaround specialist with financial consulting firm Altman and Co.
The Tire Exchange in Meriden last July 26 announced in a Facebook post its closure “with sad and heavy hearts.”
The Meriden tire shop had, four days earlier, filed for Chapter 7 bankruptcy protection. At the time, the 23-year-old company listed assets between $0 to $50,000 and liabilities between $50,001 to $100,000.
Tire Exchange had plenty of company last year. It was among 114 Connecticut businesses that filed for commercial bankruptcy in 2024, a 28% jump from the prior year. It was the sharpest annual increase in Connecticut commercial bankruptcies in more than a decade.
Other local companies that filed for legal protection from creditors included Hartford-based QSR Steel Corp., Harwinton-based Winchester Fence and Artspace New Haven.
The spike in bankruptcy filings came amid two years of significant increases nationally, according to a Hartford Business Journal analysis of federal court data.
Prior to 2022, commercial bankruptcies had sharply declined over several years. In 2014, there were 299 commercial bankruptcy filings in Connecticut. That trended downward and bottomed out at 71 filings in 2021.
The majority of Connecticut bankruptcies last year (96) were Chapter 7 filings, a legal process through which a company essentially liquidates assets to pay off creditors. In most of those cases, the company ends up going out of business.
There were 12 Chapter 11 filings last year, through which companies attempted to reorganize debt and continue operating.
Experts point to several factors driving the increased bankruptcy activity.
Patrick M. Birney, co-chair of Robinson+Cole’s bankruptcy and reorganization group, said readily available low-interest bank loans helped prop up businesses that might have otherwise struggled between 2014 and 2020.
Patrick M. Birney
And the hammer-blow that might have been expected from the COVID-19 pandemic was cushioned by federal aid like the Paycheck Protection Program, which funneled hundreds of billions of dollars in forgivable loans to small and midsize businesses, Birney noted.
In Connecticut alone, approximately 55,612 PPP loans were provided to businesses and nonprofits totaling $3.2 billion, according to U.S. Small Business Administration data.
Now, inflation, higher interest rates and tighter bank lending standards are increasing pressure on businesses of all sizes.
A mass shift to e-commerce is also hitting many retailers, Birney said, noting recent bankruptcy filings by national companies like Party City and Joann Fabric.
Birney said he sees new pressures emerging this year, through uncertainty that could come with the Trump administration’s tariffs, as well as stricter immigration enforcement cutting into labor availability.
“I believe higher prices at the grocery store and post-pandemic consuming habits are driving this, along with tariff-related uncertainties as well as labor impacts because of the immigration issues we see on the national news,” Birney said.
More distress
Roy Filkoff, a partner and business turnaround specialist with financial consulting firm Altman and Co., noted the negative impacts of pandemic-era federal aid drying up.
“Now, as we distance ourselves from that time, that (COVID-era) capital infusion has been spent and the banks are getting different directives,” Filkoff said. “Everybody is starting to look into their portfolios again.”
Under these conditions, Filkoff said he expects to see banks beef up staff in their financial workout departments.
“There’s definitely more distress in the business landscape than there has been for a while,” Filkoff said.
A recent National Federation of Independent Business survey confirms that small business optimism is waning.
The NFIB said its small business optimism index fell by 2.1 points in February, while its uncertainty index rose four points to its second-highest recorded reading.
“Uncertainty is high and rising on Main Street, and inflation remains a major problem, ranked second behind the top indicated problem, labor quality,” said NFIB Connecticut State Director Andy Markowski. “NFIB’s survey shows that the proportion of small business owners expecting better business conditions in the next six months dropped, and the percent viewing the current period as a good time to expand fell. Connecticut’s economy is built on its small businesses, but this economic uncertainty, on top of high prices, hiring challenges, and the state’s significant tax and regulatory burdens, makes it hard for many businesses not only to serve their customers but also support their communities.”
Subchapter V
One issue that could moderate bankruptcy activity this year is the recent expiration of a program that expanded small business access to a more streamlined and less costly alternative to a traditional Chapter 11 filing.
Congress in 2019 created the so-called “Subchapter V” program, which eliminates some procedural oversight requirements, with the goal of making it easier for a small business owner to restructure debt and keep control of their company, experts said.
During the pandemic, Congress temporarily expanded access to the program, making businesses with as much as $7.5 million in debt eligible for Subchapter V, up from the law’s original threshold of $2.5 million.
However, the expanded access expired last June as Congress failed to extend it.
Birney said the number of bankruptcy filings in 2024 would have been greater if not for the expiration.
Small business bankruptcy filings under Subchapter V were up 32% nationally in 2024, reaching 2,381 cases, according to the American Bankruptcy Institute, which noted the pace of increase slowed following the reversion to prior debt limits in June.
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