US bankruptcy filings drop for private equity-backed companies in 2025

Private equity-backed companies saw a notable decline in U.S. bankruptcy filings in 2025, signaling a shift in both capital strategy and distress management following several years of elevated restructuring activity.

The drop comes after a surge in filings between 2022 and 2024, when rising interest rates, tighter credit conditions, and pandemic-era debt loads pushed many leveraged portfolio companies into Chapter 11. In contrast, 2025 reflected a more stable—though still cautious—environment, with private equity sponsors increasingly opting for out-of-court solutions to manage distress.

Shift Toward Liability Management

One of the primary drivers behind the decline is the growing use of liability management exercises (LMEs) as an alternative to formal bankruptcy proceedings. Sponsors have leaned heavily on tools such as:

• Debt exchanges and maturity extensions

• “Amend-and-extend” agreements with lenders

• Drop-down financings and non-pro rata restructurings

• Uptiering transactions that prioritize select creditor groups

These strategies allow sponsors to preserve control, minimize court involvement, and avoid the reputational and operational disruption associated with Chapter 11 filings.

For creditors and collection professionals, this trend presents a more complex recovery landscape, as traditional bankruptcy processes are increasingly replaced by negotiated, and sometimes contested, restructuring tactics.

Interest Rates and Capital Markets Stabilization

The macroeconomic backdrop also played a role. While interest rates remained elevated relative to pre-2022 levels, the pace of rate increases slowed in 2025, providing some breathing room for heavily leveraged companies.

At the same time:

• Private credit markets remained active, offering refinancing options for distressed borrowers

• Equity sponsors injected capital selectively to stabilize key portfolio companies

• Covenant-lite loan structures delayed default triggers in some cases

This combination reduced the urgency for bankruptcy filings, even among companies facing operational headwinds.

Sector-Specific Trends

The decline in filings was not uniform across industries. Sectors that had been hit hardest in prior years—such as retail, healthcare services, and certain segments of consumer discretionary—saw fewer large-scale bankruptcies in 2025, though underlying stress remains.

Technology and fintech-backed firms, including some in the buy now, pay later (BNPL) space, showed mixed performance. While some avoided bankruptcy through sponsor support or restructuring, others continued to face liquidity pressures tied to funding costs and regulatory scrutiny.

Implications for Creditors and Compliance

For creditors, debt buyers, and collection firms, the shift away from formal bankruptcy proceedings introduces new challenges:

• Reduced transparency compared to court-supervised restructurings

• Increased litigation risk tied to controversial liability management transactions

• Potential subordination or impairment of claims through non-traditional restructuring tactics

These developments also raise ongoing legal and regulatory questions. Courts have begun to scrutinize certain LME structures, and policymakers may take a closer look at creditor protections in out-of-court restructurings.

From a compliance standpoint, collection strategies must adapt to a landscape where distressed companies may remain operational longer, but with increasingly complex capital structures and creditor hierarchies.

Outlook

While the decline in private equity-backed bankruptcies in 2025 suggests a temporary easing of distress, it does not necessarily indicate long-term stability. Many portfolio companies continue to carry significant leverage, and refinancing risks remain as debt maturities approach in 2026 and beyond.

If capital markets tighten again or economic conditions weaken, bankruptcy filings could reaccelerate. In the meantime, the continued evolution of liability management strategies will remain a key area of focus for creditors, regulators, and restructuring professionals alike.