Bankruptcy Cascade

When large businesses enter bankruptcy, the pervasiveness of their unpaid bills may cause suppliers to “go bust,” taking in turn sub-suppliers and so on ad infinitum. Alternately, a supplier that has suffered a large loss may be forced to call in credit granted to other customers, putting pressure on them. In addition, credit agencies may react to a major sector bankruptcy by tightening credit terms to other businesses in the sector or supplying the sector. The result of this may cause multiple further bankruptcies. This process is sometimes called a bankruptcy cascade or alternately the term “chain reaction bankruptcies” may be used.