By Michael Lodge, The Business Advisor, Greenville, SC: Bankruptcy is a legal process that provides individuals and businesses with financial relief when they are unable to meet their debt obligations. Unfortunately, recent data suggests a significant surge in bankruptcies in the United States during the first half of 2023. This article examines the rise in bankruptcy filings, comparing the statistics of 2022 with the current year. In particular, we analyze the substantial increase in Chapter 11, small business bankruptcies, and individual Chapter 13 filings. Additionally, we explore the underlying reasons behind this alarming trend.
Comparative Analysis: 2022 vs. 2023: The bankruptcy statistics for the first half of 2023 have revealed a sharp rise in several key areas compared to the previous year. Notably, Chapter 11 filings have increased by a staggering 68% in the first six months of 2023. Chapter 11 bankruptcies primarily involve the reorganization of businesses, allowing them to continue operations while developing a plan to repay creditors.
Furthermore, small business bankruptcies have surged by 55% during the same period. Small businesses often face numerous challenges, including economic uncertainties, market competition, and limited access to capital, making them more vulnerable to financial distress. The significant rise in small business bankruptcies indicates the adverse impact of these challenges.
Individual Chapter 13 bankruptcies, designed for individuals with regular income, have also seen a notable increase of 23% in the first half of 2023. Chapter 13 enables debtors to develop a repayment plan to satisfy their obligations over a specific period, usually three to five years. The rise in individual Chapter 13 filings indicates that individuals are struggling to manage their debts and are seeking legal protection to address their financial difficulties.
Reasons Behind the Surge in Bankruptcy Filings: Several factors contribute to the surge in bankruptcy filings observed in the United States in 2023. These include:
1. Lingering Economic Fallout: The aftermath of the COVID-19 pandemic has left a lasting impact on the economy, with many businesses and individuals still grappling with the financial repercussions. Loss of income, loss of jobs, reduced consumer spending, and increased operational costs have taken a toll on businesses, leading to higher bankruptcy rates.
2. Supply Chain Disruptions: The global supply chain disruptions and shortage of critical components have negatively affected various industries, resulting in reduced productivity, increased costs, and diminished revenues. Businesses unable to adapt or recover from these disruptions may resort to bankruptcy as a means of addressing their insurmountable financial burdens.
3. Rising Inflation and Interest Rates: Inflationary pressures and rising interest rates can significantly increase the cost of borrowing for both businesses and individuals. This burden can become unsustainable, leading to financial distress and bankruptcy filings.
4. Evolving Consumer Behavior: Changing consumer preferences and increased online shopping have placed additional strain on traditional brick-and-mortar retailers. Businesses unable to adapt to these shifts in consumer behavior have faced declining sales and profitability, driving them toward bankruptcy. Consumer have also cut back on their spending, making tough choices on how to use their available cash.
5. Accumulated Debt Burden: Years of accumulating debt, including personal loans, credit card debt, and student loans, have reached unsustainable levels for many individuals. The burden of mounting debt, coupled with stagnant wages and limited job opportunities, has contributed to the rise in personal bankruptcies.
Americans continue to charge on their credit cards to cover cash flow problems from wages being eaten by inflation. They are almost at the $2 trillion amount of debt. U.S. consumers now owe $986 billion plus. That a 17% plus jump from a year ago, a record high. Credit card interest rates are also playing a role in the higher total debt, reaching their own record highs this year. The average credit card APR recently soared to 20.92%, higher than at any point since the Federal Reserve began tracking annual percentage rates in 1994, according to a study from WalletHub.
The surge in bankruptcies observed in the United States during the first half of 2023 is a cause for concern and needs to be part of looking at the economy as a whole. Americans are extending themselves to increased debt is out of control. Biden economic policies set into motion the inflationary economy that has hurt all Americans. The White House needs has individuals that have advised the President on extreme actions that created financial hardships on Americans. Over government spending continues, the Congress and the White House has not been proactive in lowering the cost of government and raised the debt ceiling that is not ethical in the world of finance. Even though inflation has come down in a small amount, it is nothing to rejoice about because there are too many red flags in the banking industry, commercial real estate loan defaults, car loan defaults and repo's. The green new deal mentality has also infused a red flag economy. The electric grid is not even close to support all the EV's that Biden wants on the road, and the price of an EV is too high for most Americans to afford.
America is now in the red flag zone where anything could happen to disrupt the economy even more. When it will hit, no one knows, we just know it is coming. Americans, always be prepared, be financially conservative, keep to your budgets. We will make it through this nonsense.
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Michael Lodge is a Nationally Certified Professional Mediator specializing in business disputes, as well as family conflicts. He has written three books and hosts an international podcast on IHeartRadio and other podcast media stations.