US bankruptcy filings on pace to reach highest level since 2020

US bankruptcy filings are picking up steam after a two-year decline.

According to a report released by S&P Global Market Intelligence, there were 591 bankruptcy filings as of Nov. 30 this year, just behind 2020's tally of 603 in the same period. By comparison, there were 367 filings at this point in 2021 and 325 in 2022.

Arizona State University law professor Laura Coordes attributed the 2023 increase to higher borrowing costs and the end of federal stimulus checks. She pointed out that in 2021 and 2022, government aid was still “circulating in the economy.” That has changed.

Read more: How to get a personal loan after bankruptcy

Meanwhile, she said, interest rates have run higher in 2023, making it more difficult for businesses with debt to refinance. She also pointed out that high inflation, particularly when it comes to energy costs, has weighed on businesses.

“So you have this environment where programs that were supporting businesses and consumers since the pandemic are receding, and you're left with this high interest rate environment,” she said. “You're left with lenders who during the pandemic might have been more willing to forbear or to extend loan maturities, and they're not doing that as much now.”

Companies ranging from WeWork to Silicon Valley Bank have filed for bankruptcy protection this year. According to S&P, the Consumer Discretionary sector has led the way with 76 filings, followed by Industrials and Health Care, both of which have seen 75 filings.

Among the consumer names is Bed Bath & Beyond, which filed for bankruptcy in April. Gerald Storch, founder and CEO of management advisory firm Storch Advisors and former CEO of Toys R Us, said that Bed Bath & Beyond wound up in bankruptcy court due to a misguided strategy shift where “they went away from high quality branded goods towards more private label.” He added that though home goods sales boomed during the early stages of COVID, the surge didn't last.

“We were all stuck at home. But as soon as we can get away from home, we didn't want to buy home products anymore,” he said.

Coordes also raised the example of the retailer David’s Bridal, which filed for bankruptcy in April for the second time in five years. She said the company suffered a combination of increased competition from online retailers, which surged during the pandemic, and high debt.

David's Bridal and Bed Bath & Beyond are "emblematic of this idea of changing consumer preferences post-pandemic, and the need to address and adapt to those preferences, while also being financially able to service your debt," she said. "And I think bankruptcy has helped all of those retailers.”

Deirdre O’Connor, managing director for corporate restructuring at legal services provider Epiq, said consumers shouldn't see bankruptcies as a bad thing. She explained that bankruptcies play a vital role in the American economy.

“Bankruptcy by its very nature seems to have a negative connotation, but it's not. It's a very positive evolution in that a company has a chance to rehabilitate itself to get stronger, restructure, and go back into the economy thriving and more profitable,” she said.

But Storch, meanwhile, warned that increased bankruptcies could portend a slowing economy and potential recession.

“I think with rising debt in the economy and increased interest rates that we're seeing, several sectors have difficulty including housing, which is a very important part of the economy,” he said. “And consumers who are highly leveraged won't be able to keep accumulating debt to keep spending at the level they spent in the past.”

Dylan Croll is a Yahoo Finance reporter.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance