The United States saw a significant rise in corporate bankruptcies in 2024, marking the highest level since 2010. As many as 686 companies sought bankruptcy protection, illustrating increasing economic pressures on businesses across various sectors.
This surge in bankruptcies highlights the growing financial challenges for American companies, significantly influenced by rising borrowing costs and decreasing consumer spending, Daily Mail reported.
In 2024, the total number of corporate bankruptcies increased by 8 percent from the previous year, nearly surpassing the combined totals of 2021 and 2022. This alarming rise is largely attributed to high interest rates, which have escalated borrowing costs dramatically, tightening the financial conditions for companies that were already battling with inflationary pressures and a dip in consumer spending.
The increase in bankruptcies was notably severe among retail and restaurant chains. Party City, for instance, filed for Chapter 11 bankruptcy and decided to shut down all 700 of its stores. The company cited the long-lasting impact of inflation and a downturn in consumer spending as critical factors behind its decision.
Similarly, well-known brands such as Tupperware, Red Lobster, Spirit Airlines, and Stoli have also filed for bankruptcy over the past year.
S&P Global Market Intelligence data underlines that this trend is not isolated, with numerous companies, at least 30 of which held over $1 billion in liabilities, seeking protection from creditors.
Despite these rising bankruptcy filings, efforts to avoid such outcomes were also prominent. According to Fitch Ratings, out-of-court actions, including liability management exercises, were twice as common as actual bankruptcies.
These measures often involve restructuring debt to keep companies operational, though they can place additional strain on lenders and might only offer a reprieve.
"Liability management exercises can hurt lenders, as they typically involve taking on more debt and pushing a company closer to collapse," explained Joshua Clark of Fitch Ratings.
While many companies have succumbed to the pressures of bankruptcy, others have found paths to recovery. Red Lobster, for example, managed to emerge from bankruptcy as a going concern after closing almost 100 of its outlets.
Similarly, Tupperware received judicial approval for a restructuring deal that could potentially rescue the company from its financial woes. Nevertheless, the restaurant industry has been particularly hard-hit, with at least 22 chains filing for bankruptcy in 2024—the highest number since the pandemic year of 2020, BankruptcyData reports.
Gregory Daco, chief economist at EY, pointed to a critical factor affecting the wave of bankruptcies: "The persistently elevated cost of goods and services is weighing on consumer demands." He noted that the economic strain was hitting lower-income families especially hard, further reducing their spending power and, by extension, impacting companies that rely heavily on consumer purchases.
This downturn in spending contributed not only to the bankruptcy filings but also to broader economic concerns. Retailers like The Container Store and Big Lots have faced growing financial challenges.
Despite a boost during the pandemic from the popularity of the Netflix show 'Tidying Up,' The Container Store filed for Chapter 11 near the end of December following years of accumulated losses.
The retail industry has witnessed 48 bankruptcy filings in 2024 alone, a sharp increase from 25 during the same period in the previous year. Big Lots, a well-established retail chain, also announced 'going out of business' sales for all its US stores in September, though efforts are ongoing to save a portion of its outlets through new investment.
Though the Federal Reserve has initiated cuts to interest rates, experts foresee only a modest half-point reduction next year, indicating that financial relief for businesses could be limited and slow to materialize.
As companies navigate through these turbulent economic times, the increased number of bankruptcies serves as a stark reminder of the fragile nature of business conditions today. Businesses and consumers alike are hoping for a steadier economic climate as new management strategies and federal policies unfold.
