US corporate bankruptcies have surged to their highest level since the aftermath of the global financial crisis, as companies continue to grapple with elevated interest rates and declining consumer demand. According to data from S&P Global Market Intelligence, at least 686 US companies filed for bankruptcy in 2024, marking an 8% increase from the previous year and the highest number of filings since 2010, when there were 828 bankruptcies.
As reported by the Financial Times, the rising interest rates have put immense pressure on businesses, particularly in the consumer sector. Companies such as Party City, which filed for bankruptcy twice in as many years, are emblematic of the strain many firms are under. In December 2024, the party supply retailer announced it would shut down its 700 stores nationwide, citing the challenging economic environment driven by inflationary pressures and weak consumer spending.
The broader trend has been one of increasing financial distress for companies reliant on discretionary consumer spending, which has been significantly impacted by waning demand as pandemic stimulus measures fade. Other high-profile bankruptcies in 2024 included food storage company Tupperware, restaurant chain Red Lobster, Spirit Airlines, and cosmetics retailer Avon Products.
Gregory Daco, chief economist at EY, noted that the persistent cost of goods and services continues to weigh on consumer demand, with families at the lower end of the income spectrum feeling the most pressure. However, even those in middle and higher income brackets have become more cautious in their spending habits.
Despite the challenges, there has been some relief in the form of the Federal Reserve’s actions to reduce interest rates, though officials have indicated that only modest cuts of half a percentage point will be made in 2025. While the economic pressure is easing slightly, experts like Peter Tchir, head of macro strategy at Academy Securities, believe that the rise in corporate bankruptcies, though concerning, is not yet a major cause for alarm in terms of broader economic or banking system instability.
The surge in bankruptcies is a stark contrast to 2021 and 2022, when only 777 bankruptcy filings occurred combined, largely due to the Fed’s rate-cutting programme. In 2023, the number of filings climbed to 636, and the trend continued in 2024, with companies like Tupperware and Spirit Airlines reporting liabilities exceeding $1bn.
The rise in bankruptcy filings also coincided with a significant increase in out-of-court debt restructuring measures. These “liability management exercises,” designed to avoid formal bankruptcy filings, became more common in 2024 and are now a key part of US corporate debt defaults. Joshua Clark, a senior director at Fitch Ratings, pointed out that these manoeuvres are often a last-ditch effort to stave off bankruptcy. However, in many cases, companies are unable to resolve their operational challenges and ultimately file for bankruptcy anyway.
While the situation is grim for many businesses, experts suggest that with the right combination of improved profitability and continued support from falling interest rates, some companies may still manage to avoid complete financial collapse. However, the burden of rising debt remains a significant issue, often impacting lenders as debt piles up on top of existing liabilities.
