According to Epiq News, all bankruptcies, consumers and commercial, has been increasing significantly during the first quarter of 2023. Chapter 7 cases increased 12%. Chapter 13 cases are up to 28% increase just in the first quarter. For commercial bankruptcies in general, the quarterly increase is 19%.
The slowing economy, the fast-rising interest rates and the high level of current inflation is definitely affecting both consumers and businesses. Banks are also starting to cut down on lending.
In this blog, we are concentrating on how inflation is directly affecting the increase of bankruptcies. Here are some of the reasons:
1. Inflation is increasing costs.
The increased cost of goods and services is making both consumers and companies to pay higher prices which leads to less money, less cash flow and less profit for companies. People get less for their money and products can become less affordable.
2. Inflation is contributing to a decrease in consumer spending.
As prices keep getting higher, consumers tend to buy less as they may have less discretionary income to spend. For example, we all noticed the huge increase on the price of basic products like eggs. Sellers needed to adjust the price due to the increase in cost. Buyers are hit with really high prices for a dozen eggs. Consequently, consumers buy less eggs and this financially hurts the farmers and potentially bankrupt the business. Also, the high price affects the consumers financially.
3. Inflation affects interest rates.
Normally, when inflation is high, the Central Bank raises interest rates to control the inflation. With higher interest rates, businesses and consumers face higher borrowing costs which affect debt management. This can put both in a less than desirable financial situation.
4. Inflation affects repayment of debts.
The higher the inflation is, the less money is worth. The purchasing power of money decreases and this creates a challenge for consumers and businesses to repay debts. This also increases the risk of default which can lead to financial stress and bankruptcy.
In summary, inflation can really create chaos for consumers and businesses as it can lead to financial distress and ultimately bankruptcies due to increasing costs, decrease in consumer spending, increase in interest rates, diminishing value of money and debt burden. If you have questions or would like to talk to one of our attorneys, visit us at www.kansascitybankruptcy.com or call us at 913-422-0909. At W M LAW, we are “Here to Help”.