Key takeaways:
In 2025, companies flooded the bankruptcy courts. From unexpected free falls to carefully planned strategic restructurings, corporate bankruptcy filings reached levels not seen since the aftermath of the Great Recession.
Unlike previous downturns, which were concentrated in specific industries, this wave cut across nearly every corner of the economy. According to S&P Global Market Intelligence, bankruptcy filings among large public and private companies reached 717 through November 2025, surpassing 2024’s total of 687. This marked the highest annual count since 2010, when filings peaked at 828.
Companies cited persistent inflation, high interest rates, and trade policies that disrupted supply chains and raised costs as key drivers of financial pressure. Highly leveraged businesses faced greater risks, with private equity–backed companies proving especially vulnerable as interest rates rose and economic conditions weakened.
And with little relief expected from ongoing geopolitical and economic uncertainty, experts anticipate elevated bankruptcy filings to continue into 2026.
According to the Trends in Private Credit (2026) report from Proskauer, 39 percent of lenders say that the U.S. is either in recession now or will be in the next 12 months. And more than a quarter of lenders surveyed say 2.5 or more of their portfolio is already in default.
As more companies seek court protection, lien priority becomes a critical issue in bankruptcy proceedings. Priority often determines which creditors are paid and how much they recover, and there are increased challenges over UCC priorities.
Given these trends, here are some best practices for creditors weathering an increase in Chapter 11 filings in 2026, with a focus on proactive UCC management and risk mitigation.
Where there is potential for a business to reorganize its debts and continue as a going concern, a Chapter 11 filing can provide “breathing room” and give a debtor crucial tools to restructure and preserve value.
A Chapter 11 bankruptcy, also called a reorganization bankruptcy, is used to save and improve the debtor's business. It allows a business to restructure its finances with the help of the bankruptcy court. A Chapter 11 plan helps the business balance its income and expenses so it can keep operating. The debtor can also sell some assets to pay off certain debts.
This is different from a Chapter 7 bankruptcy, which generally focuses on liquidating assets. In a Chapter 7, a trustee takes control of the debtor's assets.
There are three types of voluntary Chapter 11 cases: traditional (or free fall), prepackaged (or prepack), and pre-arranged (or pre-negotiated). In a traditional Chapter 11 restructuring, a company facing operational or liquidity challenges files a Chapter 11 bankruptcy. Generally, at this stage, the debtor does not have an agreed-upon plan with creditors to restructure its debt.
Understanding the Chapter 11 bankruptcy process is critical for creditors, contract counterparties, and other parties in interest, as their rights and financial recoveries can be significantly affected at every stage of the case.
1. Filing a bankruptcy petition
A Chapter 11 case begins when the debtor files a bankruptcy petition with the court in the jurisdiction where it maintains its domicile, residence, or principal place of business.
Note: In a Chapter 11 case, the debtor typically remains in control of its business as a “debtor in possession,” acting as a fiduciary steward of the estate’s assets for the benefit of creditors. While operations may continue, the debtor is subject to court oversight and must obtain approval for many actions that would otherwise be routine.
These approvals, often sought through “first day” motions, may cover matters such as paying critical vendors or maintaining employee compensation and benefit plans. Because these motions can be extensive, debtors must carefully plan in advance to ensure they have the necessary authorizations in place on day one of the case.
2. Automatic stay
Upon filing, an “automatic stay” immediately goes into effect. The automatic stay is a cornerstone of bankruptcy protection, designed to halt most collection efforts and give the debtor breathing room to reorganize.
Once the automatic stay is in place, creditors and collection agencies must cease all collection activities. This includes contacting the debtor by phone or mail, filing or continuing lawsuits to collect debts, garnishing wages, or filing new liens against the debtor’s property.
However, the automatic stay is not absolute. Certain obligations are non-dischargeable, and some actions are exempt from the stay. For example, proceedings to establish, modify, or collect alimony or child support may continue. The IRS may still request tax returns or conduct audits, even though it generally cannot impose tax liens or seize property during the automatic stay. Criminal proceedings are not halted simply because they involve debt-related issues, and loans from most job-related pension plans must continue to be repaid.
In addition, creditors may seek relief from the automatic stay by filing a motion with the court to “lift” the stay, allowing specific collection actions to resume under court supervision. This relief is granted only in limited circumstances, typically when the creditor can show cause, such as a lack of adequate protection as to its collateral or that the debtor has no equity in the property. This makes successful stay relief motions difficult and highly fact-specific.
3. Filing a disclosure statement and reorganization plan
As the case progresses, the debtor is required to file a disclosure statement along with a proposed plan of reorganization that outlines how it intends to restructure its debts and operations going forward.
The disclosure statement provides creditors and other parties in interest with detailed information about the debtor’s business affairs, including its assets, liabilities, and overall financial condition. Its purpose is to give stakeholders enough information to evaluate the proposed reorganization.
The plan of reorganization serves as the roadmap for how the debtor intends to resolve its debts and restructure its operations in order to emerge from Chapter 11 and continue operating in the ordinary course of business. The plan classifies claims and specifies how each class of creditors will be treated.
Typically, claims are classified in order of priority as follows: 1) secured creditors, 2) priority unsecured creditors, 3) general unsecured creditors, and 4) equity security holders. Before the plan of reorganization is filed, it is often the subject of extensive negotiations between the debtor and its creditors and must comply with the requirements of the Bankruptcy Code.
Both the disclosure statement and the plan of reorganization must ultimately be approved by the bankruptcy court before the case can move forward.
If a debtor files for bankruptcy and multiple parties claim an interest in the company’s assets, a creditor will have priority over the debtor’s collateral if they filed their UCC-1 forms correctly and did so first. The rule "first-in-time, first-in-right" applies here, with a few exceptions.
In high-volume bankruptcy years, there is often intense competition for payments. Other creditors may dispute who gets paid first. Ideally, secured creditors would ensure their legal claims are properly documented before a bankruptcy case begins. Additionally, it is also important to keep those claims up to date.
Priority, which determines the order in which creditors get paid, is set at the time of the bankruptcy filing. Often the filing itself prompts secured creditors to review their credit documents and ensure everything is in order. By that time, their priority position is already locked in.
Consider the following to mitigate UCC risk during Chapter 11.
UCCs have an expiration date
A UCC-1 filing lasts for five years. After that, it expires and becomes invalid. If a debtor still owes money and faces financial trouble or files for bankruptcy protection, you will not have a secured interest if your UCC-1 filing has expired. This means you become an unsecured creditor and will have to wait behind others when assets are distributed. As a result, you could lose most or all of the assets tied to the loan or lease.
However, you can extend a UCC-1 filing before the five-year period expires by filing a continuation statement using a UCC-3 (UCC Financing Statement Amendment). You must submit a continuation statement within six months before the original filing's expiration date.
Outdated UCC information can cost you
When bankruptcy proceedings begin, the debtor or its noticing agent uses the addresses in UCC filings to send important notices. If your information is not current, you may miss these critical notifications. Even if you have a valid secured claim, you could lose the chance to make key arguments and claims in your favor. A reorganization plan could be approved that impacts your claim, and you will have missed the opportunity to negotiate better terms for yourself.
Keep your UCC information up to date. File a UCC-3, whenever you change your address or the name of your legal entity. Note: When filing a UCC-3, only make one change at a time. States usually reject a UCC-3 that tries to amend and continue at the same time.
Consider this real-life scenario: In re TSAWD Holdings, Inc. (601 B.R. 599 (2019)), a lender and a vendor disputed lien priority in a large bankruptcy involving a $300 million secured loan. The debtor had granted Bank of America a blanket security interest supported by a UCC-1 filing. A vendor supplying apparel under a prior consignment arrangement claimed a purchase money security interest (PMSI) and sent the required notice to Bank of America.
After receiving that notice, Bank of America assigned its secured position to a new lender, which filed a UCC-3 reflecting a new address. The vendor, however, continued sending notices to the original secured party and could not show that notice had been sent to the assignee’s updated address. When bankruptcy followed, the new secured party argued that the vendor’s notice was ineffective under Revised Article 9.
The court held that PMSI holders bear the responsibility of sending notice to the current secured party at the address listed in the most recent UCC filing, and that a prior secured party has no duty to forward notices after an assignment. As a result, the vendor’s failure to track updated UCC information undermined its priority position.
This case highlights how outdated or incomplete UCC information can have real consequences in bankruptcy. Missing or misdirected notices can cost creditors leverage, priority, and the opportunity to protect their claims when it matters most.
Your UCC needs don’t stop at state lines, and neither do our service teams. Our nationwide network is there for all your search or filing requests at any of our 4,300 filing office jurisdictions.
UCC monitoring tracks current UCC filings to prevent accidental lapses and to ensure that a filing hasn’t been mistakenly terminated. It also helps spot other filings that could negatively affect the secured party’s filing.
By conducting a "search to reflect," you can confirm that your filing is valid and identify any updates that could impact your rights. This includes changes to a debtor’s name, status changes such as dissolutions or mergers, and any related filings, such as UCC-1 and UCC-3.
Even if a UCC search was done during the loan process, lenders might want to know about any other liens placed on the debtor’s property afterward. A search to reflect can reveal financing statements filed against the debtor’s assets after the initial UCC search.
Withholding information about a potential bankruptcy doesn't protect anyone; it only creates bigger problems when the filing happens.
If you are aware that your company or a significant project is facing financial difficulties, it is crucial to inform your team immediately so they can prepare. This is not the time to keep secrets or to hope that the situation will improve on its own.
Periods of economic volatility inevitably bring waves of bankruptcy filings, and the current environment is no exception. As filings rise, so do the risks for creditors who are unprepared for the technical and procedural pitfalls that can determine outcomes in bankruptcy court, particularly those involving UCC perfection and lien priority.
Today’s financial pressures are being driven by a convergence of factors, including shifting trade policies, elevated interest rates, and refinancing challenges for highly leveraged businesses with complex, multi-jurisdictional operations. At the same time, many companies operate with thin margins and limited financial buffers, leaving little room for error when economic conditions change suddenly.
When a counterparty files for bankruptcy, even experienced professionals can find themselves navigating unfamiliar terrain. A strong understanding of the fundamentals, especially secured creditor status, notice requirements, and ongoing UCC maintenance, can make the difference between protecting your position and losing critical leverage. Preparation is no longer optional. It is essential to act decisively when the stakes are highest.
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CT Corporation has the expertise, tools, and dedicated support to help you navigate complex bankruptcy‑related challenges with confidence. If you need guidance or assistance protecting your secured interests, our team is here to help—contact us today.
