The Financial Times reported that in 2024, the United States witnessed 686 corporate bankruptcies, the highest rate since 2010, when 828 bankruptcies were recorded after the global financial crisis.
This increase – according to the newspaper – represents an 8% increase compared to 2023, as companies were greatly affected by rising interest rates and declining consumer demand.
Why do companies go bankrupt?
American companies face multiple challenges that have greatly affected their ability to continue in a market witnessing severe economic fluctuations. These challenges have contributed to an unprecedented rise in bankruptcy rates since the global financial crisis.
Among the most prominent factors that affected companies’ performance are:
- High interest rates: The high cost of borrowing has increased the burden on highly indebted companies, leaving many of them unable to meet operational costs.
- Weak consumer spending: As the impact of the fiscal stimulus resulting from the Corona pandemic wears off, consumer orders have declined, particularly affecting companies that rely on non-essential spending.
- Persistent inflation: Inflationary pressures added an additional burden on businesses, resulting in the cost of goods and services rising.
Most prominent bankruptcies
Among the prominent companies that declared bankruptcy were:
- Party City: It filed for bankruptcy for a second time in December 2024, and announced the closure of all 700 of its stores across the United States. The company explained that the bankruptcy was due to “an environment full of enormous challenges resulting from inflationary pressures on costs and consumer spending.”
- Tupperware: Manufacturer of food storage solutions.
- Red Lobster: A chain of seafood restaurants.
- Spirit Airlines: Airline company.
- Avon Products: Cosmetics stores.
“High costs for goods and services are greatly affecting consumer demand, especially for low-income families, and even in the middle and upper categories, there is growing caution,” Gregory Daco, chief economist at EY, told the newspaper.
Alternative procedures
The report indicated an increase in non-judicial settlements to reduce the probability of bankruptcy, as bankruptcies more than doubled (by a ratio of 2:1).
However, many companies that take these steps, known as “liability management activities,” eventually find themselves reverting to bankruptcy if they cannot address their operational problems.
“These measures could lead to companies piling on more debt, increasing pressure on lenders,” said Joshua Clark, senior director at Fitch Ratings.
Widespread impact
Although the Federal Reserve is reducing interest rates, it is expected to reduce them by only an additional 0.5% in 2025, leaving continued pressure on companies, according to the Financial Times.
The data indicated that 30 companies that filed for bankruptcy in 2024 had debts exceeding one billion dollars at the time of filing.
While this rise is cause for concern, some analysts such as Peter Cher, head of macro strategies at the Academy of Securities, believe that the broader impacts on the economy and banks are still limited, adding, “These cases are unlikely to lead to significant macroeconomic or systemic impacts.” “The banker.”
