U.S. Bankruptcy Filings Are On the Rise…What Does This Mean?
Bankruptcy filings are on the rise. From March 31, 2024 through March 31, 2025, bankruptcy filings in the United States have risen by 13.1% from the previous year. But of those bankruptcies, business-related bankruptcies actually rose at a higher rate (14.7%) over that same period. This increase in follows a trend of rising bankruptcies over the last few years.
The number of bankruptcies hit a low of 381,000 cases in 2022 (compared to 529,080 in 2024) but has been gradually trending upwards since. But this latest, sharp uptick has given some cause for concern because of the similarities to that of the Great Recession.
A Parallel to the 2007-2008 Financial Crisis?
During the 2007-2008 financial crisis, there were over 1,000,000 non-business bankruptcies. While the year-over-year change in the rate of bankruptcies was much higher in the financial crisis (as was the total number of bankruptcies and non-business bankruptcy), many of the same root causes remain.
Reports of rising consumer debt, higher interest rates, and financial pressures on small businesses have all contributed to this recent increase in bankruptcies. Consumer debt increased by 0.5% in the last quarter of 2024, but the total amount of consumer debt is $17.06 trillion. However, when adjusted for inflation, the total consumer debt at the peak of the 2008 financial crisis was over $18.20 trillion. That should not give consumers cause for relief, though. As continued increases in household debt can lead to a continued climb in the number of individual bankruptcies.
The number of Chapter 7 and 13 bankruptcies, in particular, has been concerning. Chapter 7, which typically involves individuals or business liquidating assets to repay debts, accounted for 60% of all bankruptcy cases filed in the last year. Chapter 13 filings, which allow individuals to reorganize and pay back debts over time, accounted for another 38%. This suggests that individuals, in particular, are struggling, but businesses are not doing much better.
With Bankruptcy Filings On the Rise, What Steps Should You Take?
The uptick in bankruptcy filings signals a need for individuals and businesses to assess their financial health proactively. For individuals, mounting debts and reduced income can quickly lead to insolvency. Businesses, particularly small and mid-sized enterprises, may face challenges due to decreased consumer spending and increased operational costs. It’s important for business owners to be cognizant of this trend and ensure that they are not taking on any new debt, as well as paying down whatever debt they have already accrued. They should also be prepared for possible downturns in sales as individuals are forced to tighten their belts.
Navigating bankruptcy can be complex, and it’s crucial to understand the implications of each filing type. Legal professionals can provide guidance on the best course of action, whether it’s debt negotiation, restructuring, or filing for bankruptcy. Be sure to contact us for more information about what steps you can take to protect your business from bankruptcy, or which type of bankruptcy filing can be best for you.
