As of this summer, Chapter 11 bankruptcy filings have reached their highest level in a dozen years, equaling what we were seeing as the economy was still crawling out of the Financial Crisis. Not only is this a bad sign for businesses, but the underlying issues causing these filings can be traced back to the struggling U.S. consumer.
The Chapter 11 bankruptcy process allows businesses to reorganize their debts while continuing operations and provides a legal framework for restructuring and negotiating with creditors.
It’s like waving a financial white flag – the business is in trouble and needs help to get back on its feet.
Tracking Chapter 11 filings is a good way to determine the financial health of the business sector and the broader economy, and helps economists spot potential downturns before they happen. Right now, rising bankruptcies are pointing to one thing: risk. It’s hitting businesses right now, but it will be coming for the overall economy next.
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