US Bankruptcy Filings Continue to Rise in Post-Pandemic Era

A person arrives at the U.S. District Bankruptcy Court for the Southern District of New York in Manhattan, on Jan. 9, 2020. Brendan McDermid/Reuters

Bankruptcy filings in the United States increased over the past year among both individuals and businesses, according to the Administrative Office of the U.S. Courts.

“Annual bankruptcy filings totaled 486,613 in the year ending June 2024, compared with 418,724 cases in the previous year,” according to a July 25 statement.

That’s a 16.2 percent jump over the previous year. While personal bankruptcy filings increased by more than 15 percent, business filings jumped by more than 40 percent. Filings have increased every quarter since June 2022, it said.

While some prominent retailers such as Rue21 have cited “inflation and macroeconomic headwinds” as reasons for filing bankruptcy, others such as Stop & Shop have pointed to “underperforming stores.” Connecticut-based Bob’s Stores said it faced difficulties to “secure the finances needed to maintain operations.”

Interest rates have remained elevated, making financing costs expensive for businesses. Meanwhile, companies are dealing with high costs of production while trying to price their products competitively in the market.

The continued increase in bankruptcy filings suggests that businesses and households are under “growing economic strain,” Amy Quackenboss, the executive director at the American Bankruptcy Institute (ABI), said last month.

Michael Hunter, vice president of bankruptcy data provider Epiq AACER, said he expects “a strong demand in individual filings ahead of us, especially considering the large increase in commercial filings, consumer debt levels, high interest rates, and overall increased costs with relatively flat household income.”

Business Optimism Versus Worker Layoffs

While commercial bankruptcies are rising, many businesses continue to be increasingly optimistic about the future, according to the U.S. Chamber of Commerce’s Small Business Index for the second quarter of 2024.

“Plans to increase staff and investment are both up this quarter, and revenue expectations for next year reached the highest levels recorded in this survey,” the report said.

More than seven of 10 respondents expect revenue increases next year, a viewpoint that was consistent across business size and sectors.

Younger businesses—those in operation for less than 10 years—were found to be more optimistic about future hiring and higher investments than businesses that have been in operation for 11 or more years.

Amid rising bankruptcies, hundreds of thousands of workers have been laid off by companies in 2024. So far, U.S. firms announced plans to cut 434,645 jobs, according to outplacement firm Challenger, Gray & Christmas Inc.

Technology firms announced the most layoffs, followed by the education industry, transportation sector, and consumer product companies.

The No. 1 reason cited by firms for laying off workers was “cost-cutting,” followed by “market/economic conditions.”

Reorganizations, Interest Rates

According to S&P Global, most of the U.S. corporate bankruptcy filings it tracked in the first half of the year were categorized as reorganizations, which refer to overhauling troubled businesses with the aim of making them profitable again.

“Higher interest rates and supply chain issues are among factors that made it challenging for firms to maintain sufficient cash flow to pay debt service and prevent loan defaults,” S&P Global said.

“With significant rate relief likely to be months away, companies could be turning to the reorganization route, which provides them time to find firmer financial footing.”

The U.S. Federal Reserve has kept interest rates unchanged at a range of 5.25 to 5.5 percent since July last year. Investors had expected rate cuts to kick off earlier this year, but that didn’t happen.

Keeping the rates as-is for longer means companies have to continue paying higher interest for loans, creating financial difficulties for businesses.

Fed Chair Jerome Powell recently told lawmakers on Capitol Hill that higher interest rates for a longer period could “unduly weaken economic activity and employment.”

A more pressing concern for businesses could be rates being pushed up even more. Fed officials had said during the agency’s June meeting that this was a possibility if inflation kept rising or remained elevated.