The debt woes facing corporate America are real, as indicated by an increase in debt defaults. In July, Business Insider reported that 55 U.S. companies had defaulted within the first six months of the year, 53% higher than a year earlier.   

“A tougher credit environment combined with a full-blown recession could result in nearly a $1 trillion of corporate debt defaults, Bank of America warned earlier this year,” Yahoo Finance stated in July. “Total U.S. loan defaults could rise to 11.3%, only slightly lower from the all-time-high of 12% seen during the Great Recession, per a Deutsche Bank analysis.” 

The stocks to avoid are those already skipping interest payments. So let’s examine the following three financially troubled stocks to avoid.    

Country Garden Holdings (CTRYY)

On Oct. 10, Country Garden Holdings (OTCMKTS:CTRYY), China’s largest private developer, warned that it may default on its international debts. Currently, the company has nearly $10 billion in dollar-denominated debt. Its liabilities are approximately $200 billion. 

This information surfaced after CTRYY missed a $60 million interest payment on some of its debt, with more missed payments were likely to follow. It defaulted on bond payments in August but was given a 30-day grace period. 

“Such non-payment may lead to relevant creditors of the group demanding acceleration of payment of the relevant indebtedness owed to them or pursuing enforcement action,” the Financial Times reported.  

How bad has it gotten for Country Garden? Its sales in the first nine months of fiscal 2023 are down 44% from last year. They were also dipping in September, the sixth consecutive month of slowing sales. So, Country Garden Holdings is one to sell or avoid altogether. 

WeWork (WE)

A recent article in The New York Times highlighted companies at risk of default on Wall Street. Specifically, it discussed the $95 million in interest payments missed by WeWork (NYSE:WE). The co-working company has seemingly had nine lives since its founding in 2010.

On Oct. 2, WeWork said it would miss $95 million in interest payments. The company revealed this move came in hopes of  accelerating talks with its lenders to negotiate its debt while seeking lease concessions from its landlords. 

Speculation about a bankruptcy is natural. The company’s Altman Z-Score is currently -1.78. This indicates it will likely enter bankruptcy proceedings in the next 24 months. However, the company reports plenty of cash to make the payments before its 30-day grace period ends. 

“I believe they will absolutely understand our decision to enter into the grace period,” WeWork interim CEO David Tolley told the paper. 

In August, WeWork warned that it doubted its ability to continue as a “going concern”. In the first six months of 2023, it burned through $530 million in cash. 

The problem is that it leases accounts for more than two-thirds of its operating expenses. That makes it very tough to generate a profit. Thus, it’s trading below $3 for a reason. 

Yellow (YELLQ)

It’s been two months since Nashville-based Yellow (OTCMKTS:YELLQ) declared bankruptcy. The trucking company received $700 million in federal aid pandemic money in 2020. Apparently, those funds are gone. 

Experts suggest that the less-than-truckload (LTL) carrier made poor decisions for years. Therefore, the announcement came as no surprise for those close to the situation. 

As NPR reported in early August, the company was losing customers by the truckload (pun intended) and had stopped picking up freight. That’s never a good sign when you’re in the business of shipping goods.

According to the NPR reporting, a congressional probe into the government funding of Yellow found that the company’s financial position in 2020 was already precarious. The inspections showed that the Treasury Department made mistakes in distributing the $700 million. 

If you’re thinking that Yellow stock will repeat the incredible rebound that Hertz Global Holdings (NASDAQ:HTZ) experienced after the car rental company emerged from bankruptcy in June 2021, think again. Stifel Research Director Bruce Chan said the bankruptcy was decades in the making. In fact, HTZ stock is now trading very close to double digits, making it one to avoid.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.