Our Analysis of the Bankruptcy Statistics
As the world continues to grapple with the aftermath of the COVID-19 pandemic, an alarming trend is unfolding in the U.S financial landscape - a significant surge in bankruptcy filings. Over the last week, we saw a 24.57% YOY increase in Chapter 7 filings, a 23.48% YOY increase in Chapter 13 filings, a 103.36% YOY increase in Chapter 11 filings, and a 150.00% YOY increase in Chapter 12 filings. These filings, reflecting the distress faced by businesses and individuals alike, are indicative of the deep economic wounds inflicted by the crisis and the subsequent economic turbulence.
While Chapter 7 cases continue to dominate in sheer numbers, these filings have seen a significant downturn during the pandemic due to COVID-19 relief assistance measures. But with the exhaustion of this relief, Chapter 7 filings are witnessing a rebound with a 20+ percent monthly increase over the previous year, hinting at a return to pre-pandemic levels.
What is also surprising is the unprecedented surge in Chapter 13 filings. Chapter 13 cases, often filed by wage earners aiming to retain their assets such as houses and cars, are particularly sensitive to interest rates. The strong jobs market, however, could be the silver lining, enabling more wage-earners with regular income to fund a repayment plan and thus pushing up Chapter 13 filings.
Chapter 11 bankruptcy cases, which are typically filed by financially troubled businesses seeking reorganization, have increased dramatically. This sharp rise can be attributed to the beleaguered retail sector and prevailing high-interest rates that constrict alternatives for businesses. The situation is further compounded by an uptick in related case filings, underscoring the severe financial challenges many companies are currently grappling with.
Looking ahead, the U.S. Department of Justice projects a substantial increase in bankruptcy filings. Its U.S. Trustee Program has estimated a 75 percent increase in bankruptcy filings between 2022 and 2024, which could mean a return to pre-pandemic levels. This prediction, although bold, is corroborated by the broader economic data, including escalating corporate bankruptcies, tightening loan standards by banks, and the surge in delinquent debt balances and first-quarter consumer debt.
The current trajectory of bankruptcy filings is on a steep climb. Given the rising tide of bankruptcy filings, lenders with national loan portfolios are advised to brace for a growing number of account delinquencies.