Increase in Business Bankruptcies as Slow Decline Transforms into Rapid Failure

Bankruptcy filings have been on the rise in recent months, with a significant increase reported this week. This marks one of the busiest three-day periods for major corporate bankruptcies on record, according to data compiled by Bloomberg. Despite this, 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.

The trend of increasing bankruptcies has been steadily climbing over the past 20 months, including both consumer and small business filings, as well as big corporates. This is attributed to higher interest rates and a decrease in consumer spending according to Michael Hunter, vice president at Epiq. 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.

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.

By Sophia Gonzalez

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