Business Bankruptcies Rise 17% in August Due to Interest Rates

Business bankruptcies reportedly experienced a sharp increase in August, with more companies seeking court protection from their creditors.

This rise can be attributed to rising interest rates and various economic headwinds, Bloomberg reported Tuesday (Sept. 5).

Commercial bankruptcies rose by nearly 17% in August compared to July, according to data from Epiq Bankruptcy cited in the report. That marked the 13th consecutive month of year-over-year increases in total bankruptcies, including families and individuals, according to the American Bankruptcy Institute (ABI), per the report.

One measure of bankruptcies, the number of Chapter 11 petitions filed, saw a significant 54% increase year-over-year in August, the report said. However, it is important to note that this number may be inflated due to duplicate filings by large firms that typically file multiple petitions to cover all their various units. Nonetheless, the rise in business failures, particularly among larger firms, is evident, Ed Flynn, a consultant with the American Bankruptcy Institute, said in the report.

Flynn suggested that the increase in bankruptcies can be attributed to rising interest rates, per the report. As the Federal Reserve has raised interest rates to combat inflation over the past year, companies have struggled to repay lower-cost debt as it matures. This has pushed some companies to file for bankruptcy, citing rising rates as one of the contributing factors.

Bloomberg’s data shows that U.S. bankruptcy courts recorded six new large filings involving assets of at least $50 million in just one week, with at least 23 big filings occurring in the previous month, the report said.

Gregg Morin, vice president of business development and revenue at Epiq Bankruptcy, said in a press release that announced the firm’s findings: “The continued year-over-year increases indicate the anticipated growth of bankruptcy filings is becoming a reality.”

In one recent development, it was reported Thursday (Aug. 31) that New York-based eCommerce company Benitago filed for bankruptcy two years after raising $325 million in funding. The Wall Street Journal report attributed the move to Benitago facing challenges as consumer preferences shifted during the later stages of the pandemic and the eCommerce sector experienced a decline as lockdowns ended.