Overall U.S. bankruptcies surged by nearly a fifth in 2023, hurt by high interest rates, tighter lending standards and the end of pandemic-era stimulus.
Data released by data provider Epiq AACER on Wednesday (January 3) showed that the total number of commercial and personal bankruptcy filings in the United States last year increased from 378,390 in 2022 to 445,186, an increase of 18%.
Epiq AACER Vice President Michael Hunter said: “As expected, we are seeing an increase in new applications in 2023 compared to 2022, with a large number of commercial applicants leading the expected growth and normalcy back to the pandemic. The amount of bankruptcies before.”
“We expect the number of consumer and business filers seeking bankruptcy protection to continue to increase in 2024 given the end of pandemic stimulus, increased funding costs, rising interest rates, higher delinquency rates and near-historic levels of household debt.” Hunter said.
Last year, the total number of commercial bankruptcy filings increased to 25,627 from 21,479 the year before, an increase of 19%.
Among them, commercial bankruptcy applications filed under Chapter 11 of the U.S. Bankruptcy Code increased from 3,819 to 6,569, an increase of 72%. A company filing for Chapter 11 bankruptcy restructures its debts and allows the company to retain assets while drafting a debt repayment plan.
Meanwhile, personal bankruptcy filings increased 18% to 419,559. There was an 18% increase in Chapter 13 bankruptcy filings, and a 17% increase in Chapter 7 bankruptcy filings.
Chapter 13 applies to personal debt restructuring. One of the benefits of filing for Chapter 13 bankruptcy is that your home is not at risk of foreclosure while the lawsuit is ongoing. They can repay some debts in full and others in part. To qualify, applicants must meet certain debt thresholds and have a regular income.
Chapter 7 allows the applicant to forgive certain debts while giving up some assets. Only individuals who earn less than their state’s median income are eligible to apply.
Commenting on the increase in bankruptcy filings, Amy Quackenboss, executive director of the American Bankruptcy Institute (ABI), said: “Debt burdens continue to grow as interest rates continue to move higher, geopolitical tensions increase, and global supply chains come under pressure. , distressed businesses and families can turn to proven insolvency procedures to get a fresh start financially.”
Lending rates for businesses and households have risen over the past two years due to the Federal Reserve’s rapid rate hikes. At the end of December 2021, the federal funds rate was about 0.7%, but it has now increased to 5.33%.
Art Hogan, chief market strategist at financial services firm B. Riley Financial, told Reuters in an interview: “The number of bankruptcy filings is rising again after the ultra-low interest rates that began in 2008 ended.”
In a high-interest-rate environment, companies are struggling to pay off upcoming debt maturities.
“Retail is a particularly hot (bankruptcy) industry in 2024,” said Catherine Corey, global head of restructuring data at Debtwire. “There are a lot of retailers who made huge profits during the pandemic, but then they dried up. “
Right now, many Americans are also struggling financially. Household debt hit a record $17.29 trillion at the end of the third quarter, according to the New York Federal Reserve.
While debt is high, personal savings rates are low.
Data from the St. Louis Federal Reserve showed the savings rate was 4.1% in November, down from 6.4% in December 2019 before the pandemic.
