Businesses in America just can’t seem to get their fill of bankruptcy. After a stormy 2023 during which filings soared, the first quarter of this year brought more of the same.
The number of new U.S. bankruptcy filings through March 31 increased year over year across all major filing categories, according to Epiq Bankruptcy.
Commercial Chapter 11 filings (including Subchapter V) registered the largest jump. The 1,894 such filings during the first quarter were up 43% from the 1,325 commercial chapter 11s during the same period in 2023.
At least, however, that rate of increase trails well behind last year’s 73% full-year gain in commercial Chapter 11 filings. Additionally, bankruptcy activity did slow down as the first quarter drew to an end; commercial Chapter 11 filings in March were only 6% greater than in March 2023.
Total commercial bankruptcies increased by 22% in the first quarter, from 5,820 in the first quarter of 2023 to 7,113 in the just-completed quarter. Subchapter V elections for small businesses increased 30% to 606 filings, from the 465 that were filed during last year’s first quarter.
The overall total of 120,094 bankruptcy filings in the quarter, including consumer filings, represented a 14% increase from the same period last year.
March marked 20 consecutive months that total, commercial, and individual bankruptcies all increased year over year. Contributing factors include the higher cost of funds and interest rates, a reduction in consumer discretionary spending, higher housing costs, and a continued drawdown of excess savings, according to Michael Hunter, Epiq’s vice president of business development.
“These factors, coupled with the post-pandemic anticipated normalization of bankruptcy volumes, lead me to believe this upward trend will continue through 2024,” Hunter said.
Meanwhile, a key event in the small-business bankruptcy landscape is scheduled to occur in late June. That’s when a rule that has allowed small businesses to qualify for subchapter V treatment with up to $7.5 million in debt will expire, unless Congress takes action. The debt limit will sunset back to the previous $2.725 million.
ABI plans on April 19 to release a final report urging Congress to permanently maintain the increased limit.
“Bankruptcy is an indispensable tool for distressed consumers and businesses aiming to repair their balance sheets in this challenging economic environment,” Quackenboss said.