Overview of Bankruptcy Surge in 2023. The year 2023 witnessed a significant surge in bankruptcy filings, particularly within the commercial sector. According to Epiq, a prominent bankruptcy data provider, there was a staggering 72% increase in Commercial Chapter 11 filings compared to 2022, reaching a total of 6,569. The broader landscape of business filings experienced a notable uptick as well, rising by 19% to reach a total of 25,627. S&P Global Intelligence corroborated these findings, reporting 591 corporate bankruptcy filings by November 2023, marking it as one of the most active years since 2011.
Factors Contributing to the Bankruptcy Wave. The surge in bankruptcy cases during 2023 did not catch experts by surprise. Multiple factors played a role in this trend, with experts attributing the increase to a spike in interest rates, a constricted lending market, and the cessation of pandemic relief measures. Michael Hunter, VP of Epiq AACER, commented on the anticipated rise, noting that the momentum gained in 2023 was expected, especially among commercial filers. The normalization of bankruptcy volumes to pre-pandemic levels was underway as companies grappled with changing economic conditions.
Debt Accumulation and the Cyclical Nature of Bankruptcies. One key contributor to the surge in bankruptcies was the heavy borrowing undertaken by companies during periods of lower interest rates. As highlighted by Brook Gotberg, a law professor at Brigham Young University specializing in bankruptcy law, companies continued accumulating debt in the post-pandemic years. NPR reported that such debt-laden companies now face a challenging scenario, dealing with a shortage of cash, soaring interest rates, and lenders exhibiting reluctance to extend credit. Gotberg emphasized the cyclical nature of bankruptcies, characterizing the wave in 2023 as a long-anticipated market swing.
Sector-Specific Impact and Projections for 2024. Within the realm of bankruptcy, the retail sector, particularly those dealing in consumer discretionary products, bore the brunt of financial distress in 2023. S&P Global data revealed that retailers accounted for the highest number of bankruptcies, with 76 filings by November. Looking ahead to 2024, challenges may persist for retailers and the broader business landscape, especially considering individual bankruptcy filings, which Epiq reported as having increased by 18% in 2023. The intricate interplay of economic variables and sector-specific challenges paints a complex picture for the year ahead.
