Where the Restructuring Market Stands: 2025 Recap and 2026 Activity

Introduction

Restructuring is a counter-cyclical business that runs hottest when the broader economy is wobbling, and 2025 delivered the busiest tape distressed bankers had seen in a decade. Commercial Chapter 11 filings climbed to 7,940, a ten-year high, and mega bankruptcies (companies with over $1 billion in reported assets) ran at 32 over the twelve months to mid-2025. The forecasts built on that tape expected default rates to stay elevated into 2026. What happened was more interesting: filings kept climbing, but loan payment defaults fell below 1%, large and mega bankruptcies came off their peak, and the sharpest distress moved into private, private-credit-funded companies that rarely show up in public default statistics.

For students preparing for restructuring interviews, that split is the story. Interviewers at PJT, Houlihan Lokey, Evercore, Lazard, and Moelis ask "what is going on in restructuring right now?" in nearly every Rx interview, and a strong answer needs the 2025 baseline, the 2026 numbers, and a view on why they diverge. This article opens the market intelligence section: it recaps 2025, sets out how 2026 has actually played out across filings, large cases, defaults and liability management, and points to the articles that cover each piece in depth.

Total bankruptcy filings across all chapters rose 11% in calendar year 2025. Inside that figure, commercial Chapter 11 filings reached 7,940, edging up from 7,893 in 2024 and marking the highest level since the post-financial-crisis cycle. Subchapter V elections (the small-business reorganization track) rose 11% to 2,446, a sign that distress had worked its way down-market into operators that would have liquidated quietly in prior cycles.

Two layers below the headline number tell the story that matters to Wall Street desks:

The month-by-month curve, the venue shift from Delaware to Texas and the Subchapter V detail are covered in the 2025 Chapter 11 surge.

Mega Bankruptcy

A Chapter 11 or Chapter 7 filing by a debtor with over $1 billion in reported assets at the time of filing. Cornerstone Research uses this threshold to track large-corporate bankruptcy activity, and it is the cohort that drives most of the high-fee mandates competed for by PJT, Houlihan Lokey, Evercore, Lazard, and Moelis.

Sector concentration: real estate, consumer, energy and industrials

If 2025 had a defining feature, it was concentration. PwC's restructuring tracking found that real estate, consumer goods, and the energy and industrials cluster together accounted for roughly 80% of Chapter 11 filings. Commercial real estate carried the heaviest tail as office obsolescence and floating-rate multifamily refinancings collided with higher rates. Consumer names produced the most-cited cases, including the Chapter 22 refiling of Rite Aid and the liquidations of Forever 21 and Joann. Industrials produced the most dramatic one.

The sector-by-sector detail lives in Sector Distress: Real Estate, Consumer, Energy, Industrials, and the four marquee cases are worked through in Notable 2025 Cases. The one that still dominates interviews is First Brands Group, the auto parts supplier that filed on September 28, 2025 in the Southern District of Texas with liabilities above $10 billion and an alleged $2.3 billion factoring fraud.

What drove the 2025 cycle: rates, structural change and tariffs

Three forces did most of the work. The first is the rate reset that began in 2022. Companies that issued debt at 3% to 5% coupons during the 2020-2021 zero-rate window were refinancing into a 7% to 9% loan market, and many could not service the higher coupons even with decent operating performance. This "good company, bad balance sheet" dynamic explains why a meaningful share of 2025 filings involved businesses with positive EBITDA but unsustainable debt.

The second is sector-specific structural change: a permanent reduction in office demand, another wave of e-commerce share shift in retail, and reimbursement pressure in healthcare. The third is policy. Cornerstone Research found that 61% of mega-bankruptcy first day declarations in its midyear 2025 report cited inflation-driven demand and cost pressure, and 48% cited regulatory, legal or policy challenges, most often tariffs and clean-energy policy.

The year-end 2025 forecasts expected elevated defaults and a steady flow of large cases in 2026. The data split three ways instead: small-company filings kept rising, large bankruptcies fell back while staying above historical norms, and loan payment default rates dropped. All of that happened against a rougher macro backdrop than forecasters assumed, including an oil shock after the US and Israeli strikes on Iran at the end of February and a Federal Reserve that raised the federal funds target range by a quarter point on September 16, 2026 to 3.75%-4.00%, its first hike since 2023.

Filings keep climbing, led by small businesses

Epiq AACER counted 6,560 commercial Chapter 11 filings in the first nine months of 2026, up 11% from 5,895 a year earlier, while Subchapter V elections jumped 46% to 2,442, according to Epiq's September 2026 bankruptcy statistics. Read those as year-to-date figures. The single month of September fell 16% year over year to 648 filings, against a September 2025 total inflated by 109 related filings from one long-term care pharmacy services provider, and the year-to-date gain has narrowed from 28% at midyear as 2026 laps 2025's heavy third quarter. Epiq still expects filing volumes to keep climbing into 2027.

The Subchapter V number is the sharper signal. A 46% jump in small-business reorganizations says the pressure from higher borrowing costs is spreading through companies far too small for a Wall Street mandate, which is why total filings and the large-case count can move in opposite directions.

Fewer large cases, and most of them private

At the top of the market, Cornerstone Research's midyear 2026 report counted 100 filings by companies with more than $100 million in assets in the twelve months to June 30, 2026, down 15% from 117 but still 22% above the 2005-2025 annual average of 82. Mega filings fell to 28 from 32, against an average of 23. The most striking line is the public company count: only 20 of the 100 filers were public, down from 36 in the prior twelve months and against a historical average of 44. The Southern District of Texas took 32% of large filings, well ahead of Delaware at 20%.

Spirit is the macro case. Its bankruptcy counsel said jet fuel costs rose by roughly $100 million in March and April alone after the Iran strikes, a hoped-for federal rescue fell through, and the airline stopped flying on May 2, 2026, with the court approving a liquidation days later. Dish DBS shows the other end of the spectrum: a cord-cutting casualty that filed a prepackaged plan on June 30 with most noteholders already signed up and emerged on October 1.

The public-to-private shift is the story underneath the count. Cornerstone notes that several mega filers, First Brands among them, had borrowed from private credit lenders, and that the S&P BDC Index fell more than 20% over the twelve months to a June 2026 low, with commentators pointing to loans to software companies exposed to AI disruption. Most of that distress is resolved out of court through PIK relief, amend-and-extends and lenders taking ownership, so it never reaches the bankruptcy count. Private Credit Distress: The Software Workout Wave covers how those workouts run.

Defaults: what the forecasts missed

Payment defaults fell further than forecasters expected. PitchBook LCD's August 2026 reading put the payment default rate for the Morningstar LSTA US Leveraged Loan Index at 0.87% by amount, down from 1.15% a year earlier. The dual-track rate, which adds distressed liability management exercises, stood at 2.88% by issuer count, against 4.37% in August 2025.

Dual-Track Default Rate

A default rate that counts both conventional payment defaults (missed interest or principal, bankruptcy filings) and distressed liability management exercises that trigger a downgrade to default or selective default. PitchBook LCD publishes it alongside the payment default rate for the Morningstar LSTA US Leveraged Loan Index because, since 2022, distressed exchanges and LMEs have accounted for a large share of defaults that a payment-only measure misses.

The year-end 2025 forecasts set the expectations that interviewers will test you against. Fitch, for example, expected US leveraged loan defaults of 4.5%-5.0% by the end of 2026. Each measure uses a different methodology, so compare readings within a measure rather than across firms:

The pattern is consistent once you see it. Measures built on payment defaults fell furthest, because borrowers kept avoiding missed payments through amend-and-extends and LMEs. Moody's broader measure, which counts distressed exchanges as defaults, still ran far higher even at its lowest level since September 2023. And none of these indices captures most of the private-credit book where the 2026 distress moved. Behind all of it sits the maturity wall, which 2026 refinancing pushed partly out toward 2028 and beyond rather than removed; the 2026 Outlook has the current schedule, and the maturity wall article explains why that refinancing math produces mandates even in a low-default year.

The in-court docket only tells half the story. The other half lives in the liability management market, where issuers and creditor groups restructure debt outside bankruptcy through uptier exchanges, drop-down financings, double-dips and consensual exchange offers. 2024 was the peak year, and 2025 kept the out-of-court channel as the first move in most large distressed situations: Octus counted 28 uptier, drop-down and pari-plus deals in 2025, down from 34 in 2024, and described a market where consensual LMEs dominated after the December 31, 2024 Fifth Circuit Serta ruling narrowed the open-market-purchase exception.

The creditor response was organization. Lenders signed cooperation agreements before any proposal landed, binding themselves to negotiate as a block, and borrowers answered with anti-cooperation language in new credit agreements. The reason is the recovery gap: lenders left out of a non-consensual LMT have recovered tens of points less than participating lenders, a pattern laid out in LMT economics and recovery disparities. The full 2024-2025 deal list, the Serta and Mitel split, and the cooperation-era playbook are in The 2024-2025 LMT Tape.

2026 continued the shift. 9fin's Q1 2026 LME update counted 11 completed deals, mostly pro rata, deal-away and amend-and-extend structures, and described the cohort as gentler and more equity-heavy than past waves. The busier side of the practice became litigation over past deals. On remand, the Texas bankruptcy court found Serta's participating lenders liable for breaching the pro rata sharing provision and awarded the excluded lenders $261.13 million plus 9% prejudgment interest on July 7, 2026, according to Mayer Brown's analysis of the remand ruling, an amount later reduced to about $105 million plus interest after settlements. In January 2026 a New York state court refused to dismiss the excluded lenders' challenge to STG Logistics' 2024 drop-down, and about a week later STG filed for Chapter 11 in New Jersey.

The US remains the largest restructuring market, but European tools increasingly sit alongside Chapter 11 in large cross-border cases. The English Restructuring Plan (Part 26A of the UK Companies Act 2006) dominates large-cap European restructurings because it offers cross-class cramdown with a 75% by-value voting threshold in each class, the closest non-US analog to Chapter 11 cramdown. Germany's StaRUG, France's accelerated safeguard procedure and Italy's reformed concordato preventivo, all shaped by the EU Restructuring Directive (Directive 2019/1023), give debtors further venue choices.

WHOA

The Wet Homologatie Onderhands Akkoord, the Dutch court-confirmed restructuring plan introduced in January 2021. It combines elements of the English Scheme of Arrangement, US Chapter 11 and the EU Restructuring Directive. A class accepts the plan with two-thirds of the value of votes cast, with no separate majority-in-number test, and the court can confirm a plan over dissenting classes, which makes the WHOA a flexible tool for binding creditors across jurisdictions.

The McDermott International restructuring, implemented through a parallel Dutch WHOA and UK Restructuring Plan after an earlier US Chapter 11, is the textbook example of coordinated cross-border work. For interviews, a sentence or two on these tools signals broader market literacy than a US-only answer.

Translating the macro picture into desk-level activity, three trends define 2026 mandates. First, the mandate mix has changed. The advisor tape had already grown sharply going into this cycle (Octus counted 35% more companies hiring restructuring advisors in 2024 than in 2023, with Houlihan Lokey leading bank engagements at 57), and the work is still there, but more of it now sits in lender-side mandates on private-credit workouts and fewer in large public Chapter 11 cases.

Second, the work is more technical and more litigious. Consensual LMEs require steering committees and cooperation agreements, the Serta damages award has raised the cost of getting a non-pro-rata deal wrong, and the Purdue Pharma decision still shapes any case with mass-tort or co-defendant exposure. Venue keeps concentrating in Texas, which keeps the Texas Two-Step and forum shopping debate live.

Third, macro risk has turned from rates alone to rates plus energy. The oil shock showed how fast a fuel-intensive balance sheet can fail, the September hike keeps floating-rate interest costs high, and the maturity wall sits behind all of it.

For interview prep, the practical takeaway is to know three things cold: the 2025 baseline (7,940 commercial Chapter 11s, 32 mega filings), the 2026 numbers (filings up 11% through September, 100 large and 28 mega filings in Cornerstone's midyear count, loan payment defaults at 0.87% in August), and the forecast-versus-outcome story, including why distress moved to private companies that the default indices miss. The rest of the section builds out that picture. Sector Distress covers where the pressure concentrates, Private Credit Distress: The Software Workout Wave covers the workouts that never reach a docket, the Purdue and Texas Two-Step articles cover the legal fault lines, and The 2026 Outlook closes with default rates, sector trends and the pipeline.