The U.S. is experiencing a new epidemic: bankruptcies. Filings are up 28% from this time last year, for a total of 45,592 over the past 12 months. Commercial Chapter 11 filings, meanwhile, increased 40% to 542 – meaning the contagion is not just confined to individuals who have maxed out their credit cards. Small businesses have seen their total filings increase by 60%.
The main cause of the bankruptcy wave seems to be consumer debt, which is now above $5 trillion in total (counting credit card debt, student and auto loans) – a milestone that has never been reached in American history. Household debt, which includes mortgage debt, now totals an aggregate of $17.29 trillion. At the same time, total consumer savings, which peaked at $2.1 trillion in August of 2021, has dropped precipitously over the last few years, to less than $200 billion today.
As consumers take on more credit card debt ($43 billion in the last quarter alone), they pay interest at rates not seen in decades – currently a paralyzing 28.15%. That’s potentially troubling for an estimated 48% of citizens who rely on credit cards to cover essential living expenses. Over half of Americans (53%) have reached their credit card limit.
Most companies rely on the financial health of the American consumer, so the wave of bankruptcies, higher interest rates, and lower savings are hidden risk factors for lower sales, lower earnings – and potentially more corporate bankruptcies in the future.
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