The US Economy Faces Rising Bankruptcies and Debt Ceiling Concerns

Surge in US Corporate Bankruptcies

In 2024, at least 686 US companies filed for bankruptcy, marking the highest level since 2010. This represents an 8% increase from the previous year, driven by high interest rates and declining consumer demand.

Notably, Party City filed for bankruptcy again in December 2024, just months after exiting Chapter 11 in October 2023. The company plans to shut down 700 stores nationwide. Other major firms, including Tupperware, Red Lobster, Spirit Airlines, and Avon Products, have also joined the growing list of bankruptcies. 

According to Fitch Ratings, the number of out-of-court debt restructuring cases has surged, doubling the bankruptcy filings. This has resulted in the lowest creditor recovery rates since 2016 for companies with debts exceeding $100 million. 

Debt Ceiling Negotiations Raise Default Fears

As the US debt ceiling negotiations stall, Treasury Secretary Janet Yellen has warned that the country could default as early as June 1, 2025, if Congress fails to raise the limit. This could disrupt payments for government employees, military personnel, and Medicare services. 

Past debt ceiling standoffs in 2011 and 2023 led to stock market corrections, followed by rebounds once agreements were reached. These situations create uncertainty and market volatility. 

With US government debt nearing record levels, prolonged negotiations could disrupt the bond market and lead to credit rating downgrades. 

Conclusion

With corporate bankruptcies reaching a 14-year high and debt ceiling talks at an impasse, financial markets face growing uncertainty. Close monitoring of fiscal policies and corporate financial health is essential for assessing economic stability in the coming months.