Personal and business bankruptcy filings in the U.S. have risen significantly, reflecting the impact of inflation, rising interest rates, and the end of COVID relief programs. This trend provides important insights for professionals in the credit and collection industry as they assess the financial health of consumers and businesses.
By the numbers: According to the Administrative Office of the U.S. Courts, bankruptcy filings for the 12-month period ending September 30 increased by 16.2% compared to the previous year. Total filings reached 504,112, up from 433,658 in 2023.
- Business filings saw the steepest increase, jumping 33.5% from 17,051 to 22,762.
- Non-business bankruptcy filings also rose significantly, up 15.5% to 481,350.
The trend: Bankruptcy filings have been increasing each quarter since mid-2022, although they are still far from the historical highs seen in 2010, when filings reached nearly 1.6 million.
- Chapter 7 filings — typically indicating liquidation — made up nearly 60% of all cases, while Chapter 13 filings, often associated with restructuring debts, totaled about 195,971.
What they’re saying: Experts in a published report pointed to the economic climate as a key driver of the surge in bankruptcies.
- “Two of the biggest factors — inflation and rising interest rates — are unlikely to shift rapidly, even if the new administration tries to address them,” said Scott A. Underwood, founding partner at Underwood Murray.
- Carmen Contreras-Martinez, a partner at Saul Ewing, added, “Tougher lending standards have also made it harder to access cash, particularly for small businesses and individual filers. The end of COVID relief has further contributed to this wave of filings.”
Between the lines: With consumer and business finances strained by economic pressures, the collection industry may face increased challenges in convincing consumers to pay their debts.
- Professionals in the credit and collection industry should consider adjusting their strategies to address consumers’ current financial realities.
- Maintaining empathy and flexibility in payment arrangements could be crucial to improving recovery rates.
The bottom line: Bankruptcy filings are climbing, and while the trend isn’t expected to change dramatically in the short term, collection agencies need to stay proactive. The economic environment is driving more individuals and businesses toward insolvency, suggesting that collection strategies should adapt to this evolving landscape.
