Bankruptcy in 2026 to be Guided by Policy Change, Fraud Scrutiny

Herrick Restructuring & Finance Litigation partner, Steven B. Smith, was quoted in Bloomberg Law discussing what bankruptcy professionals are anticipating for 2026.

The article noted that the expected number of insolvencies across health care and manufacturing has not fully materialized due to ongoing uncertainty as trade deals and tariffs remain in flux.

"The brunt of the tariffs was simply delayed and not dodged entirely," said Steve. "As mitigation strategies wear thin, and the tariffs pass through to the US prices, the demand is expected to slow down. We will see a catch up of restructurings into 2026."

The article highlighted that "commercial real estate is still struggling as the work-from-home trend of the COVID-19 pandemic lingers in some areas."

Real estate companies will likely experience more bankruptcies as refinancing in the higher rate environment may lead to further distress in places like New York City, Steve said.

The article added that businesses with substantial debt stacks will continue to pursue liability management exercises ("LMEs") as creditors try to find bankruptcy alternatives due to rising legal costs.

“Companies are expected to use these LMEs that are essentially shadow-bankruptcy tools to manage debt,” Steve said.

Uptier and dropdown debt transactions have been contentious in recent years. But companies are likely to continue aggressive maneuvers to avoid bankruptcy, Steve said.

The article explained, "That’s despite a Texas federal court’s rejection of ConvergeOne’s pre-packaged bankruptcy plan that gave unequal treatment to similarly situated creditors and the US Supreme Court’s recent decision to leave intact an appellate ruling rejecting Serta Simmons Bedding LLC’s pre-bankruptcy LME deal."

Those decisions will affect how lenders and companies interact in ways that haven’t been seen yet, Steve said.

Read the full article in Bloomberg Law here. Access may require a subscription.