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US bankruptcy filings surge in first half of 2023

Bankruptcies filings for individuals and businesses in the U.S. jumped markedly in the first six months of 2023 compared to the year before as debt levels surge.

Bankruptcy filings in the U.S. jumped markedly in the first six months of 2023 compared to the same period last year according to data released this week by Epiq Bankruptcy.

The firm reported commercial Chapter 11 "reorganization" bankruptcies surged 68%, with filings for small businesses climbing by 55%. Chapter 13 filings that allow individuals to repay a portion of their debts jumped by 23% in the first half of the year.

"The first six months of 2023 saw a nearly 70 percent increase of total commercial Chapter 11 bankruptcies," said Gregg Morin, Vice President of Business Development and Revenue at Epiq Bankruptcy. "This trend points to the economic trials businesses are facing right now, which are impacted by rising interest rates, inflation, and increased borrowing costs, to name a few."

Bankruptcy experts say myriad factors have contributed to the increase in Americans and businesses being pushed to the point of insolvency.

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"This past year, rising inflation, higher interest rates and the conclusion of government stimulus programs have put significant strain on U.S. consumers," said Amy Quackenboss, executive director of the American Bankruptcy Institute.

Quackenboss noted consumer credit card debt is at historically high levels as individuals and families struggle to pay for the higher cost of necessary household goods and services. She told FOX Business "some are facing foreclosure on their homes because the cost of refinancing is prohibitive due to rising interest rates."

Kevin Carey, ABI’s immediate past president, pointed to rising mortgage rates as another possible contributing factor to the rise in bankruptcies. He explained that Chapter 13 bankruptcies typically involve consumers who have defaulted on their mortgage payments and are trying to stop the foreclosure process by restructuring their debt with the lender. 

Carey, an expert in business restructuring and senior counsel at global law firm Hogan Lovells, said businesses are being hit with high borrowing costs and having more difficulty obtaining financing.

"I think we're still in a post-pandemic hangover where some businesses are either not recovering or recovering very slowly," he told FOX Business.

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Carey said owners of commercial real estate are also having difficulty paying their mortgages and that market is experiencing deep problems as tenants give up space because companies have been unable to draw workers back to the office. He added, "That's a distress I think that's going to continue for the near term."

The expert said it is difficult to predict whether bankruptcies will continue to rise, but noted there are indications that things could get worse. Carey and Quackenboss both said the upcoming expiration of the student loan repayment moratorium in a few months could drive more individuals into filing.

While he believes bankruptcy filings for both individuals and businesses will continue to increase, Carey does not see a crisis situation right now.

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According to Epiq's data, there were over 200,000 total bankruptcy filings nationwide in the first six months of this year, up 17% from the more than 185,000 total filings during the same period last year.

"There was a period of time when there were a million bankruptcy filings a year," Carey said. "I don't think we're going to get to that place again, at least not yet."

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