Chapter 11 Business Bankruptcies Up 72% in 2023
Several factors are to blame for the 72 percent increase in Chapter 11 bankruptcies last year.
These include higher interest rates, bloated debts and supply chains rocked by geopolitical tensions, according to Epiq AACER, a global services firm that tracks U.S. bankruptcy filing information and published new data on 2023 bankruptcy trends.
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Last year’s commercial Chapter 11 filings increased to 6,569 from 3,819 in 2022. Subchapter V filings within the Chapter 11 framework in 2023 also saw a 45 percent uptick to 1,939 filings from 1,334 recorded the year before. The Subchapter V option streamlines procedures for small businesses that meet certain debt requirements. Overall commercial filings, including Chapter 7 liquidation cases, rose 19 percent to 25,627 from 21,479 in 2022.
Consumer filings in 2023 were up 18 percent to 419,559, bringing the total bankruptcy filings for the year to 445,186. While the overall total represents a sizable 18 percent jump from the 378,390 filings in 2022, it was still below the pre-pandemic total of 757,816 recorded in 2019.
“We saw new filings in 2023 increase momentum over 2022 with a significant number of commercial filers leading the expected increase and normalization back to pre-pandemic bankruptcy volumes,” Michael Hunter, an Epiq AACER vice president, said. “We expect the increase in number of consumer and commercial filers seeking bankruptcy protection to continue in 2024 given the runoff of pandemic stimulus, increased cost of funds, higher interest rates, rising delinquency rates, and near historic levels of household debt.”
ABI executive director Amy Quackenboss said that struggling businesses and families use the “proven process of bankruptcy for a financial fresh start.” That’s because they’re dealing with high interest rates remain, not to mention geopolitical conflicts weighing on global supply chains and growing debt loads, she said.
Data from S&P Global Market Intelligence in November found that consumer discretionary and consumer staples were among the hardest hit sectors in October, the month when Rite Aid filed for Chapter 11 filing bankruptcy. As of Dec. 14, 26 retailers file for bankruptcy protection in 2023, higher than the previous two years’ totals but below filings from 2015-2020. Drug store retail remains the industry at greatest risk of default, S&P Global said last month. But by the end of December, S&P recorded 50 filings for the month, a number in line with the monthly average of just under 54 bankruptcies for 2023.
“Pennsylvania Real Estate Investment Trust [often referred to as PREIT, which filed its second Chapter 11 in three years] was the only company with more than $1 billion in liabilities to file for bankruptcy in December, bringing the total number of such filings for 2023 to 22,” S&P said. It found that consumer discretionary companies recorded the most bankruptcies last year with 82 filings. California had 95 corporate bankruptcies, followed by 75 in Texas and 68 in Florida. New York added 58 filings, while New Jersey recorded 31.
October also saw upscale home decor retailer Z Gallerie in bankruptcy court for the third time after parent company DirectBuy Improvement Inc. filed a Chapter 11 petition. Bidders can fight over Z Gallerie’s assets at an upcoming bankruptcy court auction, while the company is closing all of its 21 stores.
While Scotch and Soda, Sandwich, David’s Bridal, Soft Surroundings, Rockport Co. and Shoe City parent ESCO Ltd. were among the fashion firms that filed for bankruptcy in 2023, the home sector was 2023’s biggest loser. Bed Bath & Beyond, Tuesday Morning and Christmas Tree Shops are just some of the players that filed bankruptcy petitions, often en route to total shutdowns. Total store closings approached 2,900 at the end of 2023, with the home sector contributing over one-third at 1,228 doors.
