US Commercial Bankruptcies Jump 20%, Signaling Economic Strain
A sharp rise in Chapter 11 filings, particularly among small businesses, points to growing pressure from elevated interest rates and slowing consumer demand.
A sharp increase in business bankruptcies in November is sending a cautionary signal about the health of the U.S. economy, as companies grapple with the sustained impact of high interest rates and shifting consumer spending habits.
Commercial Chapter 11 filings surged 20% in November compared to the same month last year, according to a report from Epiq AACER, a leading provider of legal services data. The distress was even more pronounced among smaller companies, with Subchapter V filings, a streamlined bankruptcy process for small businesses, climbing 23% over the same period.
The data provides fresh evidence that the Federal Reserve's prolonged campaign to curb inflation by raising borrowing costs is continuing to exact a toll on the corporate sector. The increase is not an isolated event but part of a broader trend that has seen corporate insolvencies rise steadily. Despite the central bank beginning to lower its benchmark rate in late 2024, corporate bankruptcies reached a 14-year high last year, and the elevated pace has continued through 2025.
"The November data signals ongoing financial stress and a return toward pre-COVID levels as pandemic-era benefits fade," said Michael Hunter, Vice President of Epiq AACER. In a statement accompanying the data, he projected that "bankruptcy volumes will continue rising next year as households and businesses contend with growing balances [and] tighter credit conditions."
Small businesses, often seen as a bellwether for the U.S. economy, are proving particularly vulnerable. Unlike larger corporations, they typically have thinner cash cushions and less access to capital markets, making them more sensitive to slowing sales and higher financing costs for inventory and operations.
The increase in financial distress aligns with broader economic headwinds. Analysts point to a combination of factors, including stubbornly high input costs, softening consumer demand for discretionary goods, and the heavy debt burdens many companies took on when interest rates were near zero.
"Rising costs, tighter credit conditions, and ongoing geopolitical volatility continue to exert pressure on households and businesses already facing financial strain," noted Amy Quackenboss, Executive Director of the American Bankruptcy Institute. In an interview with ABL Advisor, she confirmed expectations for a sustained increase in bankruptcy volumes into 2026.
This trend challenges the more optimistic 'soft landing' narrative that has recently gained traction in some market circles. While inflation has cooled from its peak and the labor market has remained resilient, the rising tide of insolvencies suggests underlying fragility. A recent outlook from PwC anticipates a high volume of corporate restructurings will persist through the first half of 2025, driven by the erosive effect of elevated interest rates on company capital and liquidity.
Investors and policymakers will be watching closely to see if this corporate pain translates into wider economic weakness, such as a slowdown in hiring or investment. The data complicates the Federal Reserve's path forward as it balances the need to ensure inflation is fully contained with the risk of tightening financial conditions too much and tipping the economy into a recession.