Bankruptcy filings by commercial entities grew by more than a third this year as businesses struggled under an environment of high costs and interest rates, according to the American Bankruptcy Institute (ABI).
A total of 3,016 commercial Chapter 11 bankruptcies were filed in the January–June period this year, up 34 percent from last year, said a July 3 ABI press release. Small-business filings rose by 61 percent. Total bankruptcy filings rose by 15 percent, with individual filings increasing by 15 percent.
“The continued increase in bankruptcy filings reflects the growing economic strain on businesses and households,” said ABI Executive Director Amy Quackenboss.
Michael Hunter, vice president of bankruptcy data provider Epiq AACER, said he expects an increase in individual filings ahead, “especially considering the large increase in commercial filings, consumer debt levels, high interest rates, and overall increased costs with relatively flat household income.”
Businesses have been battered in an environment of high inflation and high interest rates. The 12-month inflation rate has been hovering above 3 percent since June last year, although some analysts calculate that it maybe much higher than that. Meanwhile, the Federal Reserve has kept interest rates within a range of 5.25–5.5 percent since July last year. This combination of higher expenses is putting pressure on businesses.
Despite such an environment, many executives remain positive about the future. A recent survey by professional services network Grant Thornton found that 58 percent of chief financial officers (CFOs) are optimistic about the U.S. economy, the highest in almost three years.
Three in four CFOs expect their net profits to grow over the next 12 months, with 69 percent expecting revenues to rise.
The Q2 Small Business Index survey from the U.S. Chamber of Commerce showed that almost three-quarters of respondents foresee their revenues increasing next year. More than half cited inflation as the top challenge they face.
Bankruptcies and Interest Rates
According to S&P Global, there have been 275 corporate bankruptcy filings in the United States so far this year until May. This is slightly lower than the 277 filings in 2023 during the same period. However, it is the second-highest filing number during the January–May period since 2011.
S&P’s bankruptcy numbers, however, only take into account large companies exceeding certain asset and liability thresholds.
Some of the largest bankruptcies so far this year involving companies with more than $1 billion in liabilities include IT firm Dynata, seafood chain Red Lobster, biotechnology company Invitae Corp., and Enviva, the world’s largest industrial biomass producer.
Companies in the consumer discretionary sector accounted for the most number of bankruptcies this year, followed by health care, industrials, consumer staples, IT, and financials.
Apparel retailer Bob’s Stores recently filed for bankruptcy and announced shutting down all stores nationwide, citing difficulty in maintaining operations after its primary lender stopped funding them.
Specialty fashion retailer Rue21 filed for bankruptcy in May. Back in April, Express Inc., which dealt in casual office attire, filed for bankruptcy. In addition, fabrics and crafts retailer Joann and cosmetics brand The Body Shop also ceased operations in the United States.
In May, S&P Global attributed the high bankruptcy filings to interest rates.
“Fading hopes of lower interest rates are likely contributing to the increase in filings, as companies that may have held out hope for rate cuts at the beginning of the year come to terms with the reality that they will remain higher for longer,” it said.
The Fed has not announced an exact schedule for rate cuts. During the recently concluded policy-making meeting of the Federal Open Market Committee in June, Fed members suggested that if inflation remained elevated, they may even raise the rates.
Policymakers have no plans on cutting down interest rates until they have “greater confidence” that inflation is heading down to the target of 2 percent, according to minutes from the meeting.
However, officials admitted that implementing tighter monetary policies could result in “deteriorating household financial positions, especially for lower-income households,” which could end up having a “larger negative effect on economic activity than the staff anticipated.”
Reprinted with permission from the Epoch Times by Naveen Athrappully.
Unfortunately, this is precisely what is known to happen when the federal government injects a massive amount of monetary over-stimulus into the economy, as Biden did via a number of unnecessary and ill-advised trillion dollar plus spending bills in both 2021 and 2022 after it way abundant clear the economy was recovery under Trump. Along with Team Biden not only increasing and then normalizing the federal budget spending levels from $4.5 trillion to now almost $7 trillion annually, this set the stage for what was sure to follow. Such actions were guaranteed to re-ignite a significant uptick in inflation throughout the economy, which is what they did and then led the Federal Reserve to use the only real tool they have in their toolbox to fight inflation. That being jacking up interest rates to attempt to slow the economy down by reducing both business and general economic activity to try and reduce the rate of inflation. Of course, both small businesses and the average citizen have to bear the brunt of the economic fallout from all these actions. That’s how it works when two giants operating with completely opposing agendas facing off against each other with us little people in the middle.
Unfortunately for most Americans, while the Federal Reserve continues its SOP trying to contain inflation brought on by reckless federal spending and massively elevated federal budgets, which are driving more and more small businesses and individuals into bankruptcy, Team Biden remains fully committed to not only continuing the accelerated spending efforts that have been a hallmark of this administration. Not only that, but Team Biden is still promising to spend even more going forward. Which means this tug of war between the Federal Reserve and Team Biden is far from over. This of course also opens the door to not only inflation lasting far longer than any of the Federal Reserve officials are publicly admitting, but also threatening the return of stagflation to be a potential risk in the near future.
I think inflation is a lot higher than 3 percent. Esp. when Dollar Tree went from a dollar to a dollar twenty five in one year…
Put business out of business, knock the middle class down and bingo Mission accomplished those cheering it on have no idea that once on the shining path there is no U turn
If our economy was doing so great, that wouldn’t happen.
Democratnomics.
Very good article Naveen , the matter of bankruptcy, always presents something significant to consider and your straightforward approach in presenting this information is appreciated.
Perhaps as a means of payback to the dying wannabe hegemony called America, the country whose out of control spending led to soul killing levels of taxation in the form of inflation, we should all band together, max out our credit cards and then use the bankruptcy tool to avoid paying back the greedy corporations that all band together like good fascists with our demonic federal government. All together we could make them suffer for a change. Nothing would be sweeter than seeing the likes of Mark Zuckerberg forced into eating rehydrated spaghetti noodles flavored with cheap margarine and perhaps some salt and pepper the last week of each month like many of the rest of us peons.
Look into personal bankruptcy……….good way to “burn the man”.
I , am concerned and scared. However that will not solve the root problem. Panic does not work!
PS I am stressed because my ON LINE coping tool requires me to take the ROBOT TEST FREQUENTLY!!!!!! ???????