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"Chapter 22" ensnares American companies after Chapter 11 bankruptcy gone wrong
"Chapter 22" is a terrifying read for American companies, but multiple major businesses have ended up there in 2025 — and others could soon follow.
Why it matters: Joann, Rite Aid and Claire's have filed for Chapter 11 bankruptcy a second time — colloquially called Chapter 22 — in 2025, and now Spirit Airlines is at risk of joining them.
The big picture: The general narrative in Chapter 22 is that liquidation becomes an increasingly realistic possibility as lenders grow skeptical that the underlying business of the bankrupt debtor is sustainable.
In other words, if one bankruptcy didn't work, how will a second make a difference?
But if "you really take a machete to all the bits that don't make money, then your chances are higher because some investor is going to say finally this thing has taken the medicine it needs to take," bankruptcy attorney Hooman Yazhari, partner in Michelman & Robinson, tells Axios.
By the numbers: Bankruptcies of large public and private companies totaled 71 in July, the highest monthly total in five years, according to S&P Global Market Intelligence data.
Businesses are grappling with a sudden uptick in costs from tariffs, sustained elevated interest rates and sluggish demand for goods from low-income consumers.
Zoom in: Spirit Airlines warned Aug. 11 that it may not survive on its own if it's unable to improve its finances.
The warning came less than six months after the ultra-low-cost carrier emerged from Chapter 11 with hopes of becoming a more competitive and financially stable operation.
The company said it faces "elevated domestic capacity and continued weak demand for domestic leisure travel," which have suppressed prices.
Reality check: The potential boomerang bankruptcy calls into question whether Spirit did enough to fix itself the first time around, says Yazhari, who also has experience in the aviation industry.
"I was a little bit surprised at how little they actually did to right-size the business," he says. "They de-levered and turned a bunch of debt into equity, but they didn't really finish the job by having the right fleet, the right number of staff, the right number of routes and the ability to come out with a much more suitable business plan for the environment."
Threat level: For Spirit, crafts chain Joann and drugstore chain Rite Aid serve as a cautionary tale of what can go wrong in a Chapter 22.
Joann announced plans to close all of its stores after filing for bankruptcy in January, less than a year after its first Chapter 11.
Rite Aid's second bankruptcy also didn't leave much room for a brighter future: The company announced plans to sell or close all of its stores.
Between the lines: In some cases, businesses can't be blamed for ending up back in bankruptcy because economic circumstances change drastically after their first case.
That explains what happened to companies like Claire's, whose first case happened in 2018, says Joshua Clark, senior director at Fitch Ratings.
"Everything that's happened since COVID clearly would not have been foreseeable back in 2018, and all the challenges that stemmed from that are what drove them into the second one," Clark says, noting recent obstacles like President Trump's tariffs.
What to watch for: This time around, expect Spirit to pursue a merger or sale as part of a second bankruptcy, if it ends up there, Yazhari says.
