For most of 2020 and 2021, government stimulus programs and historically low interest rates helped keep a lid on bankruptcy filings in the United States. However, new data reveals a shift in 2023.
With the expiration of financial aid and rising borrowing costs, American bankruptcies – both business and individual – saw a significant increase for the first time since 2020. According to data published by courthouse news, overall filings surged by nearly 17% in 2023 compared to the previous year.
Breaking down the numbers
The data paints a more nuanced picture when comparing business versus individual filings. Business bankruptcies witnessed a sharper rise, with a 40% increase from 2022. This jump suggests that many companies are struggling under the weight of debt accumulated during 2020 and 2021, particularly as interest rate hikes make repayments more expensive.
Individual filings also saw a significant increase of 17%, indicating financial strain among American households. The end of government stimulus programs like unemployment benefits and eviction moratoriums likely played a role in this rise. With these safety nets gone, individuals facing financial hardship may have found themselves with fewer options to manage debt or make ends meet.
Looking ahead: Potential causes and areas of impact
The trend of rising bankruptcies is likely to be a topic of continued discussion and analysis. The Federal Reserve’s decision to raise interest rates is expected to continue impacting businesses and individuals alike. Higher borrowing costs can make it more challenging to manage existing debt and potentially lead to further financial strain.
Rising inflation can also contribute to bankruptcy filings. With the cost of essential goods and services increasing, household budgets are stretched thin, potentially leading to defaults on loans and credit card payments. The impact of rising bankruptcies will likely be felt across various sectors. Businesses facing financial difficulties may be forced to lay off employees, potentially impacting the overall job market.
The rise in U.S. bankruptcies in 2023 serves as a reminder of the nation’s ongoing economic challenges. Suppose a household or business is facing significant financial strain; they can benefit from legal guidance to determine the kind of bankruptcy chapter they should consider to achieve financial relief.
