Bankruptcy Filings Showing Upward Trend in All Chapters
Economic pressures appear to be taking a toll. After a sharp decline in bankruptcy filings during the COVID pandemic, more individuals and businesses are filing for relief through bankruptcy.
“The weight of inflation, rising interest rates, and concern over supply chain channels continue to have an economic impact on companies and families,” said ABI Executive Director Amy Quackenboss in a media report. “Bankruptcy provides distressed households and businesses with the opportunity to rebuild their financial futures.”
Bankruptcy petitions across all chapters increased by 7% in September 2022 for the second consecutive month, according to Epiq Bankruptcy Analytics. There were 33,184 bankruptcy filings in September 2022.
Commercial filings saw the biggest jump. The 437 Chapter 11 petitions in September 2022 marked a 76% surge over the 249 filings in September 2021. The most significant increase was in small business filings under Subchapter V. September 2022 had 150 filings, a 79% increase over the same month in 2021.
When comparing August 2022 with August 2021, bankruptcy filings collectively increased by 10%. Individual filings spiked 10% while commercial bankruptcy filings saw a 6% surge. August 2022 total filings of 35,355 is a 15% rise over the 30,854 petitions in July 2021.
Fewer Bankruptcies YTD
While the last two months show increases over the same months in 2021, the overall data reveal that year-to-date totals are below last year. The first nine months of 2021 saw 312,647 total filings. In the same period in 2022, filings decreased by 9% with 284,773 bankruptcy petitions. The only chapter showing an increase in 2022 over 2021 was Subchapter V.
Gregg Morin, vice president of business development and revenue at Epiq Bankruptcy, said, “While we anticipate economic pressures will continue to push new filing trends higher overall, we are still seeing mixed results month-over-month by individual chapters and debtor types.
Relationship Between Economic Crisis and Bankruptcy
In a historical evaluation of bankruptcy filings since 2005, an economic crisis is followed by a sharp increase in bankruptcy filings. After Lehman Brothers filed for bankruptcy in September 2008, large commercial bankruptcy petitions skyrocketed. The same phenomenon occurred after March 2020 when the World Health Organization declared COVID-19 a pandemic.
After the initial spike in bankruptcies at the start of the pandemic, large corporate bankruptcy filings dropped below historical averages in 2021 and the first half of 2022, according to Cornerstone Research.
“U.S. government stimulus programs, low borrowing rates, and high debt forbearance helped disrupt predictions of continued growth in the number of bankruptcy filings,” said Nick Yavorsky, a Cornerstone Research principal. “Looking ahead, however, there are some concerns that increased corporate debt levels, rising interest rates and inflation, and a potential global recession may contribute to an increase in bankruptcy filings.”
Bankruptcy in Pennsylvania
Through September 2022, there have been 7,242 bankruptcy cases filed in Pennsylvania. Most of those bankruptcies were filed under Chapter 7 or Chapter 13. The state’s year-to-date statistics reflect a 9% decrease over the 7,957 bankruptcies filed from January through September 2021.
One interesting shift is that more individuals are choosing to file for Chapter 13. Nearly 45% of bankruptcies were Chapter 13 in 2022 compared to 30% in the previous year. This change could be due to more filers with incomes too high to qualify for Chapter 7, or they want to protect assets that would be liquidated in Chapter 7.
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