Riding the Waves of Change: Navigating the Surge in Bankruptcy Filings in 2024

In February 2024, we witnessed a striking surge in Commercial Chapter 11 bankruptcy filings—a whopping 118% increase from the previous year, jumping from 377 in February 2023 to an astounding 822 this year, as reported by Epiq Bankruptcy. This significant uptick was notably driven by a flurry of filings in a couple of major Chapter 11 cases.

Zooming out a bit, the broader commercial landscape wasn’t much different, with total filings in February ballooning by 48% to 2,546, up from 1,720 in the same month last year. And it wasn’t just the big players feeling the pinch; small businesses were hit hard too. Subchapter V elections, a lifeline for smaller entities seeking Chapter 11 relief, shot up by 78% to 213 filings, a steep climb from the previous year’s 120.

But it’s not just the commercial sector; the overall bankruptcy scene also felt the heat. In February alone, there were 39,014 filings, marking a 22% increase from February 2023’s 31,909 filings. This continues a 19-month streak of year-over-year increases across the board for individual and commercial bankruptcies alike.

Diving into individual filings, they rose by 21% to 36,468, from 30,189 the year before. Breaking it down, Chapter 7 filings (which typically involve liquidating assets) were up by 25%, and Chapter 13 filings (aimed at restructuring debts) increased by 9%.

Comparing month-to-month, February saw a significant leap in bankruptcy filings across various categories. Commercial Chapter 11 filings were 77% higher than January’s figures, and overall commercial filings saw a 20% increase. Subchapter V filings were up by 22%, showing a clear trend of more businesses and individuals turning to bankruptcy for relief.

Echoing this sentiment, Michael Hunter of Epiq AACER noted the double-digit increases from both monthly and annual perspectives, hinting at a return to pre-pandemic bankruptcy filing levels. Amy Quackenboss from the American Bankruptcy Institute also highlighted bankruptcy’s role as a vital pathway for those struggling to navigate through economic challenges like inflation and high-interest rates.

A critical aspect under discussion is the debt eligibility limit for small businesses choosing Subchapter V reorganization under Chapter 11, currently set at $7.5 million but scheduled to revert to $2,725,625 in late June. The American Bankruptcy Institute’s Subchapter V task force is advocating for this limit to be permanently maintained at $7.5 million, a move they believe will provide essential support for small businesses aiming for recovery and reorganization. Their recommendations are eagerly awaited at the 2024 ABI Annual Spring Meeting this April, following a preliminary report submitted to Congress last December that favored keeping the higher eligibility limit.

The statistics and discussions around these bankruptcy filings highlight the ongoing challenges and the crucial support mechanisms in place for businesses and individuals seeking a fresh start amid tough economic conditions.