Bankruptcy Filings on the Rise in First Half of 2023

Chapter 11 bankruptcy filings in the United States jumped 68 percent in the first half of 2023 compared to the same period last year, according to Epiq Bankruptcy, a provider of bankruptcy filing data. Epiq reported a total of 2,973 commercial Chapter 11 bankruptcies were filed in the first six months of 2023, compared to 1,766 in the same period last year. Additionally, individual Chapter 13 filings also saw a 23 percent jump during the same time period. Bankruptcy filings for small business, categorized as Subchapter V elections within Chapter 11, jumped 55 percent, according to the data. Bankruptcies have increased in recent years as companies face higher borrowing costs and persistent inflation. The largest bankruptcies in 2023 so far were Envision Healthcare, Kidde-Fenwal, Monitronics International, Whittaker Clark & Daniels, Bed Bath & Beyond, LTL Management, SVB Financial Group, Diamond Sports Group, Avaya, Serta Simmons Bedding, and Party City Holdco, with each of these bankruptcies carrying over $1 billion in liabilities. “The growth in filings is reflective of more families and businesses facing surging debt loads due to rising interest rates, inflation, and increased borrowing costs,” American Bankruptcy Institute’s executive director Amy Quackenboss said in a statement. Bankruptcy filing under Chapter 11 allows a company to stay in business as it sheds debt and other costs it cannot afford. Several companies have filed for bankruptcy in a similar manner in the past, including General Motors and most of the nation’s major airlines, and gone on to subsequently report record profits. Mohsin Meghji, founding partner of restructuring and advisory firm M3 Partners, told CNBC that capital is much more expensive now. “Look at the cost of debt. You could reasonably get debt financing for 4% to 6% at any point on average over the last 15 years. Now that cost of debt has gone up to 9% to 13%.” The Federal Reserve has steadily raised its key interest rate to a target range of 5 percent to 5.25 percent after 10 consecutive hikes. This has made borrowing more expensive for companies and individuals. The central bank left interest rates unchanged in June, but anticipates two more hikes by the end of 2023. Banks aren’t lending In a May 12 video on Twitter, researcher and economist Peter St. Onge cited a UBS study stating that bankruptcies in excess of $10 million are now “running almost eight per week,” nearly double the peak level during the COVID-19 lockdowns. The worst of the bankruptcies don’t usually come early in a recession, he pointed out. Instead, they come a “year or two” into a recession. “And yet, here we are seeing them before the show even begins,” Onge said, indicating that a large number of bankruptcies are happening even though the United States has yet to be hit by a recession, which is defined as two consecutive quarters of declining GDP growth. Onge attributed the rise of recent bankruptcies to a key factor: “Banks aren’t lending.” “Banks are battening down the hatches, hogging their bailout money instead of lending it out,” he said. “That credit crunch means not only do we get bankruptcies like in any recession, on top of that, we get a lending wall that cuts off even the healthy businesses. Of course, their jobs go down with them.” The less lending that banks do, the more likely various companies are to cut back on investment, which, in turn, slows the growth of employment and the economy overall. Naveen Athrappully and Reuters contributed to this report.

Bankruptcy Filings on the Rise in First Half of 2023

Chapter 11 bankruptcy filings in the United States jumped 68 percent in the first half of 2023 compared to the same period last year, according to Epiq Bankruptcy, a provider of bankruptcy filing data.

Epiq reported a total of 2,973 commercial Chapter 11 bankruptcies were filed in the first six months of 2023, compared to 1,766 in the same period last year.

Additionally, individual Chapter 13 filings also saw a 23 percent jump during the same time period. Bankruptcy filings for small business, categorized as Subchapter V elections within Chapter 11, jumped 55 percent, according to the data.

Bankruptcies have increased in recent years as companies face higher borrowing costs and persistent inflation. The largest bankruptcies in 2023 so far were Envision Healthcare, Kidde-Fenwal, Monitronics International, Whittaker Clark & Daniels, Bed Bath & Beyond, LTL Management, SVB Financial Group, Diamond Sports Group, Avaya, Serta Simmons Bedding, and Party City Holdco, with each of these bankruptcies carrying over $1 billion in liabilities.

“The growth in filings is reflective of more families and businesses facing surging debt loads due to rising interest rates, inflation, and increased borrowing costs,” American Bankruptcy Institute’s executive director Amy Quackenboss said in a statement.

Bankruptcy filing under Chapter 11 allows a company to stay in business as it sheds debt and other costs it cannot afford. Several companies have filed for bankruptcy in a similar manner in the past, including General Motors and most of the nation’s major airlines, and gone on to subsequently report record profits.

Mohsin Meghji, founding partner of restructuring and advisory firm M3 Partners, told CNBC that capital is much more expensive now.

“Look at the cost of debt. You could reasonably get debt financing for 4% to 6% at any point on average over the last 15 years. Now that cost of debt has gone up to 9% to 13%.”

The Federal Reserve has steadily raised its key interest rate to a target range of 5 percent to 5.25 percent after 10 consecutive hikes. This has made borrowing more expensive for companies and individuals. The central bank left interest rates unchanged in June, but anticipates two more hikes by the end of 2023.

Banks aren’t lending

In a May 12 video on Twitter, researcher and economist Peter St. Onge cited a UBS study stating that bankruptcies in excess of $10 million are now “running almost eight per week,” nearly double the peak level during the COVID-19 lockdowns.

The worst of the bankruptcies don’t usually come early in a recession, he pointed out. Instead, they come a “year or two” into a recession.

“And yet, here we are seeing them before the show even begins,” Onge said, indicating that a large number of bankruptcies are happening even though the United States has yet to be hit by a recession, which is defined as two consecutive quarters of declining GDP growth.

Onge attributed the rise of recent bankruptcies to a key factor: “Banks aren’t lending.”

“Banks are battening down the hatches, hogging their bailout money instead of lending it out,” he said.

“That credit crunch means not only do we get bankruptcies like in any recession, on top of that, we get a lending wall that cuts off even the healthy businesses. Of course, their jobs go down with them.”

The less lending that banks do, the more likely various companies are to cut back on investment, which, in turn, slows the growth of employment and the economy overall.

Naveen Athrappully and Reuters contributed to this report.