Business bankruptcies rise 33.5% in 2024, sectors to struggle in 2025

In 2024, a combination of rising interest rates, inflation, increased labor costs, and changes in consumer spending post-pandemic were common factors contributing to the surge in company bankruptcies. Business filings rose by 33.5 percent in the 12 months leading up to September 30, 2024, according to the Administrative Office of the U.S. Courts. Bankruptcy experts predict that these factors will continue to drive companies to financial ruin in 2025, particularly in industries already struggling in 2024, such as healthcare, automotive, casual dining, and retail. Healthcare In 2024, a wide range of healthcare companies, including hospital chains, nursing homes, and medical device manufacturers, filed for bankruptcy. Healthcare businesses—especially those with substantial debt or niche models—are particularly vulnerable due to the unpredictable nature of government regulations and reimbursement changes, according to Ron Meisler, a partner in Skadden's restructuring practice. “The healthcare industry is always prone to disruption, and it’s difficult to predict where the changes will come from,” Meisler said. Companies such as Georgia-based LaVie, a nursing home operator, pointed to a new staffing rule mandating increased care as a key factor in their bankruptcy. Florida-based Clinical Care Medical Centers blamed changes in Medicare and Medicaid reimbursement rates for its Chapter 11 filing. Additionally, businesses that expanded rapidly during the COVID-19 pandemic, like Vyaire, a respirator manufacturer, are now facing setbacks. This trend is expected to continue in 2025 for companies that scaled up to meet pandemic demands, such as travel nurse staffing agencies and remote mental health services. Automotive Industry The auto industry, including both parts suppliers and electric vehicle (EV) companies, will likely remain under financial stress in 2025. A decline in EV demand caused significant losses for companies that incurred large debts or raised substantial investor capital to compete in the sector. High-profile companies, including Swedish battery manufacturer Northvolt and EV maker Fisker, went bankrupt in 2024. Many companies in the EV space remain unprofitable and need additional funding to invest in technology and manufacturing, but lenders and investors may be less willing to support struggling companies after seeing prominent firms, such as Fisker and Lordstown Motors, fail. Meisler stated, “The public capital markets are not really designed to support companies that are still, essentially, science experiments.” Additionally, Republican president-elect Donald Trump is expected to reduce support for electric vehicles by eliminating consumer tax credits and loosening regulations on gas-powered cars. The broader automotive industry also faces challenges. Auto parts suppliers such as American Tire Distributors, Wheelpros, and Accuride filed for bankruptcy in 2024, grappling with lingering supply chain disruptions from the COVID-19 pandemic and potential tariffs proposed by Trump that could hurt the industry further. Casual Dining and Retail 2024 saw a sharp rise in bankruptcies within the casual dining sector, with well-known brands like Red Lobster and TGI Fridays, along with smaller chains like California Pizza Kitchen and Rubio's Coastal Grill, entering bankruptcy. Several of these chains, backed by private equity, expanded too aggressively and couldn’t manage the weight of their growth. Others blamed rising labor costs, particularly in high-cost states like California. As the casual dining sector contends with high interest rates and inflation in food prices, customers may rethink their spending habits in 2025, according to Randall Klein of Goldberg Kohn. “The costs of running a restaurant have risen significantly, but restaurants cannot always pass those costs onto customers,” Klein explained. “Food prices have increased, check sizes have shrunk, and people are dining out less.” The retail sector, continuing its years-long "retail apocalypse," saw companies like Big Lots, Express, and Party City declare bankruptcy. Retailers are burdened by high costs for labor, supplies, and rent, compounded by a shift toward online shopping, a trend that accelerated during the pandemic. In 2025, these industries are likely to face continued challenges as the lingering effects of inflation, rising costs, and shifting consumer behaviors create financial stress.