Commercial Chapter 11 Filings Increase 70% in First Half of 2024 | Hacker News Reader

Commercial Chapter 11 Filings Increase 70% in First Half of 2024

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36 pointspetethomas17 comments

I hope that bankruptcies rise but then level out at a sustainable rate, for all of our sakes. It seems like most governments, companies, and individuals are drunk on debt right now. Slowly, steadily cutting off the rotting part sounds reasonable to me.

What are the alternatives? Dropping interest rates and allowing these sick entities continue to accumulate debt? Raising interest rates and causing a cascading effect of bankruptcies? They both sound unhealthy to me.

I suppose I omitted inflating away all debt, but my impression is that high inflation isn't a tool one wields much control over.

I remember reading about the immense debt around the time of the French revolution in both France and England. The French "ate the rich" and allowed inflation to erase government debt. England stuck to the plan and spent (from memory) a century in somewhat austere conditions paying down theirs. I find it tough to stomach both options, either will disrupt the calm and stable economy I've spent my entire adult life in so far. It's not a "need", things at this point simply will change.

Lets check how many of these received PPP funding and year of incorporation.

I agree, same situation in Canada. I'd bet, at the margins, the increase are "new businesses".

And it doesn't even have to be sinister! Lots of people did a lot of things...differently during the pandemic and its aftermath. We are normalizing.

My knee jerk question is how many of those are brick-and-mortar joints getting squeezed on the rent. Seems like it’s getting harder and harder for non-giant companies to afford rent on storefronts. Again— just random non-expert musing here.

I don't know. The commercial real estate markets have been terrible for the past few years. I would think the rents would be pretty reasonable in many areas.

This isn't that unusual. It's a lagging indicator of the effects of higher rates. Even 2k per year out of millions isn't bad. We certainly have other problems in the economy right now, but these bankruptcies are more of a symptom than the problem.

> Overall commercial filings registered 2,743 for the first half of 2024, representing a 27 percent increase from the commercial filing total of 2,154 for the first half of 2023

Does anyone know why Chapter 11 would increase so much more than other bankruptcy filings?

From what I understand (in my limited knowledge), Chapter 11 is the “milder” one, compared to Chapter 7, but I have no idea what that actually means for businesses in terms of the economy. Is it a good thing that there are relatively more “mild” bankruptcies? Or does this increase even says anything about the economy at all? ~2500 filings seems pretty low regardless. I feel like there is some context missing, as the article is pretty vague overall.

Only going to rise and no one should be surprised. The increasing cost of debt is causing a domino effect of bankrutcies in many industries. The only thing surprising is that it's staring a little earlier than expected. The last of the good financing was in 2020 at peak pandemic, and many took advantage. We should expect a wave of bankruptcies in 2025/2027/2030 as much of the debt rolls over and becomes unmangagable. Same is true for commerial leases.

I'm definitely feeling it. Between Jan 31 and today I've had several companies just stop paying. They can't. Lines of credit have been either cut, or reissued at onworkable rates, or both.

At the local level you also have a lot of smaller businesses that simply piled on debt during COVID and tried to ride it out, but there was never really any hope.

> I'm definitely feeling it. Between Jan 31 and today I've had several companies just stop paying. They can't. Lines of credit have been either cut, or reissued at onworkable rates, or both.

If you don't mind, can you give concrete examples for the education of worker bees like me?

You want them to tell you which of their clients can't pay???

Without naming names expliclity, this list actually catupures two bankruptcies that caused downstream credit issues for me specifically: https://www.thestreet.com/economy/most-notable-business-bank...

Two of the three billion dollar retail bankruptcies have affected me personally. Because when companies like this go bankrupt, so do (effectively) the distirbutors that supplied them, many of which have accounts payable finanacing. So while everyone else in the chain isn't bankrupt yet, the banks are now the ones determining who gets paid and who doesn't. Only the largest obligations get paid. Everyone else gets shafted until the lawsuits start, and then the bankruptcy is declared—but this takes time. It's like being terminal and on life support. This has the odd side effect of sometimes boosting the revenue of the largest suppliers. The smaller suppliers that aren't getting paid stop shipping. Thus, the relatively availablity of items from the largest suppliers increases. Production slighting goes up, and orders to raw material good suppliers increase as a result. It looks like sales are actually improving, but what's happening is the inflation before the pop. And because the biggest suppliers are often the ones publicly listed, it really does look like things are improving from publiclly available data.

Retail can sometimes ride the wave for a while, but it eventually crashes. Right now many companies are gearing up to try to ride the wave through holiday. This is why you should expect retail bankrupcties to pop in Q1/Q2.

Retail bankruptcies are brutal beause there are so many people in the chain and they all effectively rely on the creditworthiness of the most downstream business. That's just how it is. It totally screws upstream distibutors almost immediately, which puts manufactuers in a dire position—do you keep shipping to someone who can't pay? Everyone kind of just pretends to operate like normal, but it's a death spiral that can't really be overcome, especially when debt burns and future costs are increasing. In an inflationary enviroment sales will just never be able to catch up.

I am in a pretty tight bind right now. I know there is another major retail bankrtupcy that's about to happen and I have large AR with them specifically. When (not really if) they declare bankruptcy, probably early-to-mid next year, it will crush me and force me to radically change my business just to surivive. You can bet that, unless something changes dramatically between now and year's end, there will be a wave of even more serious retail bankruptcies in 2025. It really should not be surprising. Retail—IN PARTICULAR—refinciancned and renegoiated in 2020 becuase of the closures. A lot of that is going to start rolling over next year.

Thanks for the detailed info. This is really enlightening.

In a hypothetical scenario where the fed cuts interest rates a little - say 25 bps - does that have any impact on all of this? As in, is there any chance your business - the small supplier - could potentially survive the lowering of payments by your regular buyers?

What options does a small business have in such circumstances?

The answer is YES because it gives the big retailers more time. Does it fix the underlying problem? No, not really—but it buys time. Combined with good demand the big retailers can recover (or, more likely, consolidate).

I feel like commercial bankruptcy filings alone don't tell the whole picture. Did the number of newly created commercial entities increase, flat out or decrease in the years leading up to this? Comparatively how much? Without context, one number isn't enough to make anything of it.

Yeah, it would have been much more informative to see a simple graph, perhaps on a quarterly basis, going back over at least one economic cycle (back to 2008, say). How does this rise compare to previous ones? Is this a fairly typical blip, or an unprecedented jump?

Who's left holding what bags?

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