Credit challenges drive commercial bankruptcies up from record lows
April 25, 2023
- After descending to record low volume during the pandemic, bankruptcy rates are on the rise again, with March reflecting the ninth consecutive month of rising commercial bankruptcy filings compared to a year prior, leading to a nearly 20% increase in commercial filings compared to the first quarter of 2022.
- Counterintuitively, despite macroeconomic pressures during the pandemic, commercial bankruptcy filings declined to the lowest levels since 1986 during the pandemic as companies were able to take advantage of low interest rates and abundant stimulus capital to avoid distress.
- A moderate increase in commercial bankruptcies could be a sign of normalizing conditions and a healthy development for the broader economy: companies whose underlying business model has become obsolete in a changing economy have prolonged their existence through stimulus and low rates, but their closure will ultimately allow capital and resources to flow to more productive segments of the economy.
- Increased bankruptcy filing volume indicates continued credit challenges among corporations. A Federal Reserve’s report this week additionally confirmed that banks are tightening lending standards, making it more difficult for companies to borrow.