As the landscape of bankruptcy continues to shift, the data are pointing to the possiblity of economic uncertainty. Data collected by Epiq Bankruptcy reveals a significant increase in bankruptcy filings in the commercial market, with implications for investors and buyers alike. In this blog, we'll analyze the data, uncover the reasons for the surge, and offer predictions and guidance for navigating the hidden potential within the expected wave of bankruptcy across the country.
Epiq Bankruptcy's data paints a clear picture of the current bankruptcy landscape. In the first half of 2023, total bankruptcy filings reached 217,420, marking a substantial 17% increase from the same period in 2022. Commercial filings surged by 18%, and individual filings followed suit with a 17% uptick. Notably, Chapter 11 commercial filings experienced a staggering 68% increase, while small business filings under Subchapter V of Chapter 11 saw a notable 55% rise.
Despite a seemingly stable economy with positive employment rates and successful efforts by the Federal Reserve to curb inflation, a cloud of uncertainty looms. Unlike the expected turbulence in 2022 due to pandemic-related events, 2023 presents unforeseen challenges. Observers speculate that a recession may be on the horizon due to the massive debt accumulation during the pandemic.
One critical factor contributing to the surge in bankruptcy in USA is the looming debt maturity wall. In the current high-interest-rate climate, organizations encounter difficulties securing funds amid economic uncertainty, particularly in sectors like cryptocurrency, commercial real estate, and retail. The increase in Chapter 11 filings suggests that companies, particularly in the middle market, are struggling to fund their operations and service their debts.
Continued Increase in Chapter 11 Filings: As inflation and interest rates remain at historically high levels, the ability of companies to service their debt becomes more challenging. The upward trajectory of Chapter 11 filings indicates that businesses, especially in the middle market, are turning to bankruptcy protection as a means to address financial challenges.
Rise in Subchapter V Filings: The simplicity, speed, and cost-effectiveness of Subchapter V make it an attractive option for small businesses looking to restructure their debts. Moreover, the increased eligibility limits for Subchapter V elections are expected to drive more filings. A task force is set to issue recommendations in April 2024, further influencing the landscape of small business restructuring.
Disconnected Economy: With expensive borrowing costs, rising inflation, and tighter lending restrictions, companies face hurdles in securing adequate financing. Chapter 11 becomes a valuable tool for addressing debt-laden capital structures.
Considering current economic trends and the rising number of bankruptcies in USA, savvy business owners should plan ahead to seize future opportunities in the distressed business market. The spike in bankruptcy during the first half of the year suggests a similar wave in the latter half as organizations assess their options for managing outstanding debts. Having the right resources, expertise, tools, and partnerships is crucial in navigating this landscape.
Monitoring lending trends and the state of capital markets can provide valuable insights for developing strategies to target and acquire distressed businesses in these uncertain times. Aligning with a business broker who understands your space and freeing up cash flow now can ensure speed and efficiency when an advantageous buying opportunity presents itself.
In the evolving economic landscape, business owners must remain vigilant and adapt to changing dynamics. The significant year-over-year surge in bankruptcies in the US serves as a clear signal that numerous distressed business opportunities are on the horizon. By comprehending the data, forecasting future trends, and proactively planning, you can position yourself to swiftly capitalize on these buying opportunities when they arise.
To know more about how bankruptcy filings are creating new opportunities and changing the overall deal-making landscape, reach out to us today.
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