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Increase in Business Bankruptcies as Slow Decline Transforms into Rapid Failure

Bankruptcy filings have been on the rise for businesses of all sizes, with a significant increase in major corporate bankruptcies this week. This trend has been attributed to higher interest rates and a decrease in consumer spending according to Michael Hunter, vice president at Epiq.

Nine companies have filed big Chapter 11 cases since Sunday, including two telecommunication and two pharmaceutical companies. Interestingly, five of these cases were filed in Delaware, a main hub for restructuring cases due to the high number of companies incorporated there. Pre-bankruptcy deal-making has also become more common among companies seeking restructuring, with the goal of reducing costs and the time required under court supervision.

Despite the increase in business bankruptcies, bankruptcy lawyer Derek Abbott notes that this doesn’t necessarily indicate broader economic trouble. He has seen a rise in restructuring work in recent months, even as the US economy avoided predictions of a recession when the Federal Reserve increased interest rates. Abbott highlights that certain sectors such as telecom, retail, and pharmaceutical are facing challenges that contribute to the rise in bankruptcy cases.

Commercial insolvencies saw a significant jump of 43% in the first three months of 2024 compared to the same quarter the previous year, and Hunter anticipates that filings will continue to rise throughout the year. The diverse nature of the US economy means that even in times of overall growth, some sectors will continue to struggle, leading to an increase in bankruptcy cases.

By Samantha Jones

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