Business Bankruptcies Rose Sharply in 2024, and Trend May Continue

The recent year saw a marked increase in new business bankruptcies in the U.S., including Chapter 11 cases. According to statistics released by the Administrative Office of the U.S. Courts, there were 6,067 total commercial chapter 11 bankruptcies filed during the first nine months of 2024, a 36 percent increase over the 4,561 filed during the same period in the prior year.

Analysts link the increase to a convergence of economic factors straining corporate finances. Here are key causes for the rise in Chapter 11 cases, which are expected to continue in 2025:

• Elevated interest rates — The Federal Reserve’s series of interest rate hikes between March 2022 and January 2024, which were aimed at curbing inflation, have significantly increased borrowing costs for businesses. Tightening of the monetary policy has led to higher debt servicing expenses, squeezing profit margins and reducing financial flexibility. Companies with substantial debt burdens consequently have found it increasingly difficult to meet their obligations, pushing many of them toward bankruptcy.

• Persistent inflation — Despite efforts to control inflation, it has remained stubbornly high, escalating operational costs for businesses. Profit margins have been eroded due to rising expenses for raw materials, labor and energy, since companies are unable to pass most of these costs onto consumers. This financial strain has compelled some businesses to implement austerity measures, with many seeking relief through bankruptcy proceedings.

• Supply chain disruptions — Global supply problems have led to delays and increased costs in production and distribution. These disruptions hinder businesses’ ability to maintain inventory levels to meet customer demand. Resulting revenue losses are contributing to financial distress. 

• Declining consumer spending — People are buying less due to economic uncertainty and reduced disposable income. Retail and consumer service businesses have seen decreases in revenues, which increase the likelihood of insolvency.

• Geopolitical uncertainties — Tensions over trade policies and international conflicts make for an unpredictable business environment. Implementation of tariffs and trade restrictions has increased costs for companies reliant on international trade, straining their financial health. 

With the Federal Reserve indicating that interest rates will remain elevated, borrowing costs are likely to continue to challenge businesses in 2025. Additionally, ongoing geopolitical tensions and supply chain issues are unlikely to resolve in the short term, maintaining pressure on operational costs and efficiency. The cumulative effect of prolonged financial strain are likely to continue to prompt a higher rate of Chapter 11 filings, as businesses exhaust their reserves and credit options.

The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most experienced Chapter 11 bankruptcy law firms, with 12 locations across the region. If your company needs help with debt reorganization, call 310-271-6223 or contact us online to schedule a free consultation.