Bankruptcy Filings Rise 11% Even as the Economy Expands

The Administrative Office of the U.S. Courts said bankruptcy filings climbed to 621,111 in the 12 months ended September 30, an 11.4% increase from the prior year. That rise has come even though the broader economy is still expanding.

The Administrative Office of the U.S. Courts said bankruptcy filings climbed to 621,111 in the 12 months ended September 30, an 11.4% increase from the prior year. The economy those filers live in is still growing. Real GDP rose at a 2.2% annual pace in the second quarter, unemployment is at 4.2%, and weekly jobless claims fell to 194,000, one of the lowest readings of the past year.

The numbers make sense together once the source of the pressure is clear: the cost of debt. Paychecks are still coming in, but they do not go as far as they once did, and more people are turning to bankruptcy while still employed.

Paychecks Keep Coming, but the Buffer Is Gone

Nonbusiness filings, which are mostly from individuals and families, accounted for 594,057 of the total and also increased 11.4%. Overall filings are up about 63% from the June 2022 low of 380,634, though they are still far below the roughly 1.6 million seen in 2010. Filings in 2022 were unusually low because stimulus savings and loan forbearance were still supporting households.

That cushion has faded. The Bureau of Economic Analysis puts the personal saving rate at 4.1%, down from 5.2% a year earlier. Real average hourly earnings, adjusted for inflation, slipped to 11.24 from 11.38 at the start of the year. At the same time, the average credit card rate at commercial banks rose to 21.19%, the highest level of the past year.

Debt is heaviest among households with the least room to absorb it. The bottom half of households by wealth holds 51.6% of all household consumer credit, according to the Distributional Financial Accounts. A recent National Financial Capability Study from the FINRA Foundation found that the share of adults spending more than they earn rose to 26%, a record high for the survey. Middle-income earners posted some of the sharpest declines. Consumer sentiment at 48.1 in September points to the same strain from the household side.

Small Businesses Are Leaving the Field Faster

Business filings rose 12.5% to 27,054. Epiq’s figures are even higher. Elections under Subchapter V, a simplified Chapter 11 process for small firms, reached 2,442 in the first nine months of the year, up 46%. Part of that increase reflects congressional changes that made it easier for more small businesses to file, so it may overstate how much fresh distress is developing.

Still, Bloomberg reported that America’s truckers are under pressure as carrier bankruptcies mount. A struggling small employer often cuts hiring and investment long before it files, which means current filings may be a warning sign for weaker local payrolls ahead.

When Bankruptcies Become a Credit Problem

Higher filings and a credit crisis are not the same thing, and for now the data point only to the former. The Fed’s credit card delinquency rate fell to 2.85% in its latest reading, down from 2.95% in a previous update and well below the roughly 6.8% peak reached in 2009. The Sahm Rule recession gauge stands at 0.00.

Two indicators matter most from here. The first is the next quarterly delinquency reading. If it rises again while unemployment remains low, that would suggest interest costs alone are enough to push borrowers into trouble. The other is jobless claims.

If claims move steadily toward 250,000, lost income would add to the pressure from high rates. At that point, credit card issuers, small-business lenders, and retailers dependent on discretionary spending would begin to feel the strain more directly. For now, the increase in bankruptcies is exposing weak household balance sheets that a growing economy has kept out of sight.