(CN) — Bankruptcy filings rose by over 16% from last year, following a trend of steady growth since June 2022, according to a report released Thursday by the Administrative Office of the U.S. Courts.
For a decade, bankruptcy filings were steadily declining: From September 2010 to June 2022, total bankruptcy filings fell from a high of nearly 1.6 million to a low of 380,634. But in June 2022, in part because of the Covid-19 pandemic’s effect on the economy, filings began to increase again — though the numbers are still well below the 1.6 million seen more than a decade ago.
According to some bankruptcy scholars, the recent trend may be attributed to the rising of interest rates and the expiration of financial aid programs.
“As the economy returns to a more normal relationship between interest and inflation, we’re going to see more bankruptcy, especially on the personal side,” Bruce Markell, a bankruptcy law professor at Northwestern University, told Courthouse News.
According to Thursday's report, business filings for bankruptcy rose by 40.3% since last year, from 15.724 to 22,060.
Markell, who served as a bankruptcy judge for nine years, said this increase is most likely a result of rising interest rates.
“As the economy generates factors that increase the cost for the people and the entities who live in the economy, you’re going to see more filings,” Markell said.
He added that the increase in business filings for bankruptcy may also be attributed to the impact of remote work on commercial real estate. Because a lot of owners and landlords of commercial buildings have three- or five-year loans, the impact of increased vacancies on businesses and commercial real estate hasn’t yet been fully realized.
“And so we’re seeing the beginning of that, which is why commercial bankruptcy filings was so high,” Markell said. “But we haven’t seen that yet. There’s a huge amount of debt that won’t be covered, it’ll be this year or next.”
Personal bankruptcy filings rose by a smaller margin, with a 15.3% increase since last year, continuing a trend of expectations among consumers to pay more increasingly to survive day-to-day expenses and unexpected financial shocks.
But the rise in bankruptcy filings isn’t necessarily a concern, Markell added.
“In one sense, a good bankruptcy system is part of any well-functioning economy,” Markell said. “If you have an economy that is based in full or in part of capitalism, you’re going to have people who fail. That’s just part of the equation.”
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