Bankruptcy filings have experienced a significant rise in the twelve-month period ending June 30, 2024, according to recent statistics released by the Administrative Office of the U.S. Courts. The increase marks a notable shift after years of declining bankruptcy cases, with both personal and business filings contributing to the surge.
A Closer Look at the Numbers
Over the past year, bankruptcy filings have risen by 16.2 percent, bringing the total number of cases to 486,613. This marks a substantial increase from the 418,724 cases filed in the previous year. Notably, the spike in business bankruptcies stands out, with a staggering 40.3 percent increase, jumping from 15,724 cases to 22,060. Non-business, or personal, bankruptcy filings also saw a significant rise of 15.3 percent, increasing from 403,000 to 464,553.
These figures indicate a broader trend of financial strain impacting both businesses and individuals across the United States. For businesses, the 40.3 percent increase could be attributed to ongoing economic challenges, including inflation, supply chain disruptions, and rising interest rates, which have made it difficult for some companies to stay afloat.
Historical Context: A Decade of Decline Reversed
To fully understand the implications of the recent rise in bankruptcy filings, it’s essential to consider the historical context. For over a decade, bankruptcy filings steadily decreased, reaching a low of 380,634 in June 2022, down from a peak of nearly 1.6 million in September 2010. This long-term decline was largely due to a combination of economic recovery following the Great Recession and legislative changes that made it more challenging to file for bankruptcy.
However, the trend reversed starting in mid-2022, with each subsequent quarter showing an increase in filings. While the current numbers are still far below the historical highs seen in 2010, the upward trend is a clear signal of growing financial pressures.
Breakdown by Chapter: What Types of Bankruptcies Are Rising?
Bankruptcy cases in the United States are filed under different chapters of the Bankruptcy Code, with Chapter 7, Chapter 11, and Chapter 13 being the most common.
- Chapter 7: Known as "liquidation bankruptcy," Chapter 7 filings rose from 239,125 in 2023 to 284,975 in 2024. This type of bankruptcy is typically filed by individuals and businesses that have few assets and wish to eliminate most of their debts.
- Chapter 11: Often referred to as "reorganization bankruptcy," Chapter 11 is primarily used by businesses that need to restructure their debts and operations. The number of Chapter 11 filings increased from 5,986 in 2023 to 8,717 in 2024, reflecting the financial challenges faced by many businesses in the current economic environment.
- Chapter 13: Known as the "wage earner's plan," Chapter 13 allows individuals with regular income to create a plan to repay all or part of their debts. Filings under Chapter 13 also saw an increase, rising from 173,362 in 2023 to 192,421 in 2024.
What Does This Mean for the Future?
The rise in bankruptcy filings suggests that both businesses and individuals are struggling to manage their financial obligations in the current economic climate. For businesses, the increase in Chapter 11 filings indicates a growing need for debt restructuring and reorganization, as many companies face mounting pressures from debt and operational costs. On the personal side, the rise in Chapter 7 and Chapter 13 filings may reflect the financial challenges many Americans face, including job losses, medical expenses, and mounting consumer debt.
As bankruptcy filings continue to rise, it’s crucial for both businesses and individuals to seek financial advice and explore all available options before reaching the point of filing. Understanding the different chapters of bankruptcy and the implications of each can help those facing financial difficulties make informed decisions.
The data from the past year serves as a reminder that while bankruptcy can offer a fresh start, it is not a decision to be taken lightly. As we move forward, keeping a close eye on economic trends and seeking professional advice can help mitigate the risks and challenges associated with financial instability.
