Americans are feeling the crunch as U.S. corporate bankruptcies reach their highest level since the 2008 financial crisis. In 2024, a staggering 686 companies filed for bankruptcy – an 8% increase from 2023 and more than all of 2021 and 2022 combined. This marks the most filings since 2010, according to S&P Global Market Intelligence.
High interest rates are hitting companies hard. Rising borrowing costs are driving many into debt. As inflation bites and consumer spending slows, businesses struggle to stay afloat. Even with the Federal Reserve’s plan to lower interest rates, relief for companies will be limited. Only a slight half-point cut is expected in 2025.
Bankruptcies skyrocket in 2024
In 2024, corporate bankruptcies soared. While just 777 filings were made between 2021 and 2022, 686 filings came in 2024 alone. The rise is concerning, especially as 2024 marks the highest number since 2010.
More businesses are now avoiding bankruptcy with out-of-court solutions. However, this is a temporary fix. These strategies, known as “liability management exercises,” are not foolproof and may lead to eventual bankruptcy.
Big names have fallen in 2024. Party City filed for Chapter 11 again, closing all 700 stores due to inflation and reduced consumer spending. Tupperware, Red Lobster, and Spirit Airlines also filed for bankruptcy. Even popular vodka brand Stoli joined the list.
Retail and restaurant chains hit hardest
The retail and restaurant sectors are taking the biggest hits. 48 U.S. retail companies went bankrupt in 2024, nearly doubling last year’s 25. Among the casualties were iconic chains like Red Lobster, BurgerFi, and TGI Fridays. Red Lobster, after filing in May, managed to stay open by shutting almost 100 locations.
Restaurants aren’t the only ones struggling. The Container Store, a well-known home goods retailer, filed for Chapter 11 protection in December. Despite a brief surge from Marie Kondo’s Netflix show “Tidying Up,” the company was weighed down by mounting losses.
A clear pattern: debt struggles and inflation
Why are so many companies collapsing? The main issue is debt. Companies that relied on cheap loans in the past are now facing skyrocketing borrowing costs. Meanwhile, inflation continues to hurt consumer demand, especially for lower-income families.
As Gregory Daco, chief economist at EY, pointed out, “The persistently elevated cost of goods and services is weighing on consumer demands.” The worst-hit? Lower-income Americans who are cutting back on spending.
The bigger picture
With 2024’s bankruptcies, the situation is grim. 30 of last year’s filings involved companies with over $1 billion in liabilities. That’s a clear sign of the mounting financial strain many businesses are facing.
While some companies try to restructure or use financial tricks to avoid bankruptcy, experts warn these are just temporary measures. In many cases, they only delay the inevitable. Joshua Clark from Fitch Ratings explains that such efforts often increase debt, pushing companies closer to collapse.
The road ahead
Things aren’t looking much better for the future. While the Federal Reserve may reduce interest rates slightly, it won’t be enough to save every struggling company. Many businesses, particularly in the retail and restaurant industries, will continue to face tough times.
This trend is not just a few isolated incidents. It’s a clear sign that businesses across America are buckling under pressure. And consumers? They are feeling the strain too.
