US Bankruptcies Among Companies Have Fallen by 43.1% Since 2020
According to a MoneyTransfers analysis, the number of American companies filing for bankruptcy has declined since 2020. The site has presented data showing the number of American companies filing for chapter 11 in Q1 2020 was 23,114. These have shrunk to 13160 by the end of Q1 2022. That’s a 43.1% decrease in those applications.
Jonathan Merry, MoneyTranfers’ CEO, has been discussing these figures and holds, “The federal government unveiled the March 2020 CARES Act to protect businesses from the adverse effects of COVID-19. Likewise, it initiated The Paycheck Protection Program that helped many small businesses to stay afloat. These and the near-zero interest rates were pivotal in pushing the filings down.”
Could Other Factors Be The Reasons Behind The Low Filings?
While reports of declining bankruptcy may sound like good news, some experts aren’t celebrating yet. They caution that this supposed decline may not indicate improved financial health.
For instance, the American Bar Association (ABA) holds that changes in court operations could have led to depressed filings. The COVID-19 mitigation measures may have hampered access to courts and legal representations hence the decline.
It also suggests that bankruptcy fees may have hindered some businesses from filing for Chapter 11. ABA mentions a study that found a correlation between the provision of tax rebates and the filing for bankruptcy.
Finally, another possible reason for the decline could be the uncertainty surrounding the COVID-19 pandemic. Some players may have adopted a wait-and-see attitude to determine the pervasiveness of the situation before filing for bankruptcy.
Not Out Of The Woods Yet
While the global economy has begun to recover from the shocks of the pandemic, the danger has not passed. Stimulus packages have bought distressed firms some extra time. But they could be masking deeper frailties of businesses.
The World Bank has reported an upsurge in financial risks globally since the pandemic’s onset. That increase is due to businesses borrowing to manage their liquidity gaps. This borrowing has coincided with declines in company earnings putting pressure on their debt servicing abilities.
At the same time, the Coronavirus crisis has altered consumer behaviour which could challenge the sustainability of some businesses. Full story and statistics can be found here: US Bankruptcies Among Companies Have Fallen by 43.1% Since 2020