Overall bankruptcies are up by 16 percent over the past year, with filings by businesses up 40 percent.
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.
This is 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.
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.
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 Q2, 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 out 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-plus years.
Technology firms announced the most layoffs, followed by the education industry, transportation sector, and consumer product companies.
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.”
Keeping the rates as-is for longer means companies have to continue paying higher interest for loans, creating financial difficulties for businesses.
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.