April 23, 2024 2:57 pm
Increase in Business Bankruptcies as Slow Decline Transforms into Rapid Failure

Bankruptcy filings have been on the rise in recent months, with data showing a significant increase in major corporate bankruptcies over the past 20 months. This week has been one of the busiest three-day periods for major corporate bankruptcies on record, with nine companies filing big Chapter 11 cases.

The trend of increasing bankruptcies has been attributed to higher interest rates and a decrease in consumer spending. Michael Hunter, vice president at Epiq, notes that this has led to an increase in both consumer and small business bankruptcies, as well as big corporates.

Pre-bankruptcy deal-making has also become more common among companies seeking restructuring, with the goal of reducing costs and the time required under court supervision. Despite the increase in business bankruptcies, bankruptcy lawyer Derek Abbott notes that this doesn’t necessarily indicate broader economic trouble. He has seen a rise in restructuring work in recent months, even as the US economy avoided predictions of a recession when the Federal Reserve increased interest rates.

Commercial insolvencies saw a significant jump of 43% in the first three months of 2024 compared to the same quarter the previous year, and Hunter anticipates that filings will continue to rise throughout the year. The diverse nature of the US economy means that even in times of overall growth, some sectors will continue to struggle, leading to an increase in bankruptcy cases.

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