America’s Bankruptcy Comeback: Why 2025 Bankruptcy Filings Are Surging

Bankruptcy filings have consistently fallen each year for over ten years—that is, until recently. Over the last two years, cases have sharply increased, jumping 11.8% nationwide in 2025. Representing over 542,000 cases, these stark figures have economists, businesses, and households alike paying attention. (U.S. Courts through June 2025.)

So who exactly is filing? It's not big corporations. It's everyday Americans who are struggling—and the financial strain isn't being felt equally. Some states' bankruptcy filings have surged by more than 25%, while others are holding steady or even declining.

2025 Bankruptcy Filing Increases by State

Here's why the national figures don't tell the entire story:

• Rhode Island residents appear hardest hit, leading the nation with a 27.6% year-over-year bankruptcy filing increase.
• Florida and Minnesota follow closely behind, each posting a 20% increase.
• The Southern U.S., which consistently claims the highest per capita bankruptcy rates, accounted for 38% of all filings despite representing less than a quarter of the U.S. population.

Other notable facts? Only South Dakota, Alaska, and Delaware saw decreases.

Why Credit Card Debt Is Driving the 2025 Bankruptcy Surge

High interest rates, rising grocery prices, and student loan payments coming due are among the challenges families face. But while those are contributors, and certainly related, the bottom-line problem lies elsewhere—with credit card debt. Specifically, rising credit card balances suggest people are using them to pay for essential expenses—a classic indicator of an impending financial crisis.

Credit Card Delinquency Rates and Bankruptcy Connection

By mid-2025, total outstanding credit card debt reached approximately $1.21 trillion. Roughly 14.1% of credit card balances were at least 30 days overdue. Even more concerning, over 12% of all credit card balances were delinquent (past due) by 90 days or more as of August 2025.

How Lower-Income Households Are Affected

Lower-income households have been hit the hardest, with delinquency rates exceeding 22% compared to just 8% among higher-income earners. While we can't say this is specifically what's causing the bankruptcy uptick, the correlation is there.

Small Business Bankruptcies in 2025: Why the Numbers Are Understated

Although individuals represent the overwhelming majority of bankruptcy filers (approximately 95% of all filings), small businesses are also hurting. In communities across the country, retailers and restaurants are quietly closing. Many have lost the battle against higher borrowing costs and slimmer profit margins.

However, failed small businesses aren't fully represented in official bankruptcy statistics. Many small business failures never reach bankruptcy court. Instead, owners close their doors and walk away. As a result, the official bankruptcy figures understate the true scope of small-business distress.

Chapter 11 Subchapter V Filings for Small Businesses

The small businesses that do file typically use Chapter 11, Subchapter V—a bankruptcy chapter designed to help income-producing small businesses remain open while restructuring their debts. These filings increased 6% in 2025, according to U.S. Courts data.

How Interest Rates Impact Small Business Insolvency

For small business owners, rising inflation has driven up the cost of goods, rent, and utilities. These increases have eroded profit margins. Also, the Federal Reserve's rate hikes have made securing financing challenging.

2025 Bankruptcy Filings vs. 2008 Recession: Key Differences

The 2008 downturn created a wave of consumer bankruptcies driven by home foreclosures. Chapter 7 filings—where individuals liquidate assets to pay creditors—peaked around 2010, with nearly 1.6 million filings that year.

Different Causes, Similar Financial Pressure

Unlike 2008, today's bankruptcy uptick is driven by rising personal debt. Credit card balances are the primary driver, combined with the return of student loan obligations. There's no single event triggering filings—instead, multiple factors have gradually squeezed household budgets until bankruptcy became the only option.

This year's filings have not yet reached the peaks of the post-2008 era, but the trend is concerning. Even though federal data shows filings remain substantially below historical highs, the rate of increase is accelerating.

Why 2025 Filings Remain Below 2010 Peaks

Several factors are supporting a somewhat stronger economy:

• stronger employment levels compared to the 2008-2009 mass layoffs
• less severe housing crises, and
• continued, though uneven, economic growth.

However, if current trends continue without intervention—such as interest rate relief or student loan policy changes—filings are likely to continue increasing throughout 2025 and into 2026.

Despite the sharp increase, current filings of 542,529 remain far below the 1.6 million Chapter 7 filings recorded at the 2010 peak.

Chapter 7 vs. Chapter 13: Which Bankruptcy Is Right for You?

The two most commonly filed bankruptcy chapters you'll choose between are Chapters 7 and 13. The right choice depends on your income, assets, and debt situation. An attorney can help you select the option that's best for you.

Chapter 7 Bankruptcy: Quick Debt Discharge

Most individuals prefer filing for Chapter 7 bankruptcy. It works quickly, typically by discharging (eliminating) qualifying debts in three to five months without repayment.

Example. Mary accumulated significant credit card debt while paying her student loan payments, which recently resumed. She was using credit cards to cover basic living expenses. Her minimum payments were becoming unmanageable. After exploring debt management plans and learning that the required payment would still be unworkable, she filed for Chapter 7. In a matter of months, she discharged her credit card debt, freeing up more funds to apply to her student loan obligations.

Chapter 13 Bankruptcy: Repayment Plans to Save Your Home

Chapter 13 involves a three- to five-year repayment plan. It can help prevent foreclosure, repossession, and other property loss. Chapter 11, Subchapter V, is the reorganization process intended for small businesses. It was modeled after Chapter 13 to provide relief to companies that wanted to remain open but couldn't afford filing a traditional Chapter 11.

Example. Cynthia owned a small restaurant that struggled with rising food costs. Even though she did her best to cut expenses, her profit margins continued to shrink, and she couldn't pay suppliers. After consulting with an attorney, she restructured her debts under Chapter 11, Subchapter V. Both she and her loyal customers were thankful that the bankruptcy filing was successful, allowing her to keep her business open.

When Is It Time to File for Bankruptcy?

Below are common red flags.

1. Using Credit Cards for Everyday Needs

If you're using credit cards to cover basics—like groceries, gas, or utilities—you're not alone. Rising costs have pushed many families to rely on revolving debt even for living expenses. This pattern often precedes delinquency (falling behind on payments), a common trigger for consumer bankruptcy filings.

Example. Jenna was living paycheck to paycheck on her teacher's salary when her rent and other expenses increased. No longer having the funds for food, she resorted to using her charge card to pay her monthly $600 grocery costs. When her minimum payments reached $420 per month, she filed for Chapter 7 and started fresh.

2. Falling Behind on Minimum Payments

Being unable to keep up with credit card or loan payments is a sign you shouldn't ignore. When there's no relief in sight, it's usually best to file for bankruptcy early. This helps you avoid the next step—collection calls and lawsuits.

Example. After Henry lost his job, his credit card balances rose quickly. The balances ultimately maxed out his available credit. However, interest continued to accrue, increasing his balance by another $2,000. On his attorney's advice, Henry filed for Chapter 7 soon after, and because he had been unemployed for several months, qualifying for Chapter 7 by passing the "means test" was easy.

3. Facing Foreclosure or Repossession

If your car or home is in danger, bankruptcy can help by providing temporary or permanent relief. Chapter 13 bankruptcy, in particular, allows debtors to keep assets while catching up on missed payments.

Example. Amber was three months behind on her car loan and facing repossession. A Chapter 13 plan allowed her to spread her arrears over five years, retain her vehicle, and rebuild her credit.

4. Constant Collection Calls and Wage Garnishment Threats

Calls from creditors and collection agencies are stressful. They can quickly turn into a collection lawsuit. A creditor who wins can garnish your wages, place liens on your property, and even seize property.

However, filing for bankruptcy puts the automatic stay into effect. The automatic stay is a court order that stops most collection actions immediately. This includes wage garnishments, foreclosures, repossessions, and collection lawsuits. (11 U.S.C. § 362.)

Example. After losing a collection lawsuit, Hector received a wage garnishment notice. The notice stated that his employer would soon be required to deduct money from his paycheck. He filed for Chapter 7, which immediately halted the wage garnishment. Also, the underlying debt was erased or "discharged" in the bankruptcy case.

5. Failed Debt Management or Consolidation Efforts

If you've already tried debt consolidation, settlement, or counseling without relief, bankruptcy could be the next step. Rising interest rates have made consolidation loans less effective in the past.

Example. After enrolling in a debt management plan requiring $900 monthly payments, Tonya realized she would pay into it for several years, only to see her credit drop at the end. By contrast, her Chapter 7 case eliminated $28,400 in unsecured debt within six months, and she made significant progress rebuilding her credit over the following two years.

How Bankruptcy Helps You Start Fresh Financially

Filing for bankruptcy resets the finances of those struggling with debt, getting many people back on their feet within months. Millions of Americans have used bankruptcy to regain their footing and rebuild their financial lives. If you're like most people, the discharge of qualifying debts will be a much-needed source of relief.

Example. Constance faced overwhelming medical bills she couldn't afford to pay after falling ill. Her high deductible was close to $10,000. Because she was living paycheck to paycheck, she knew she couldn't pay it in the near future. After meeting with a bankruptcy lawyer, she filed for Chapter 7. She quickly had her medical bills, along with credit card balances and other qualifying debts, discharged, putting her in a better financial position than before her illness.

Bankruptcy FAQs: Debt Relief and Fresh Start Questions

• What is the main difference between Chapter 7 and Chapter 13 bankruptcy?
• Will bankruptcy ruin my credit forever?
• Can bankruptcy stop wage garnishment?
• Are all debts discharged in bankruptcy?
• When is the best time to file for bankruptcy?

What is the main difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 bankruptcy quickly discharges qualifying debts, typically within three to five months, and doesn't require debt repayment. In Chapter 13 bankruptcy, you must pay creditors some portion of what you owe over three to five years. Chapter 13 is the chapter to file when you want to prevent foreclosure, repossession, and other property loss. For instance, you can catch up on missed payments and keep your house, whereas it's more likely you'll lose your home in Chapter 7.

Will bankruptcy ruin my credit forever?

No. While you can expect your credit score to drop after filing for bankruptcy, many people can rebuild their credit within a few years after filing.

Can bankruptcy stop wage garnishment?

Yes. The automatic stay order is put into effect when you file for bankruptcy. It immediately halts most collection actions, including wage garnishments.

Are all debts discharged in bankruptcy?

No, not all debts can be discharged in bankruptcy. For example, nondischargeable debts include newly incurred income taxes (and most other taxes), support obligations, and most student loans are typically not dischargeable in bankruptcy.

When is the best time to file for bankruptcy?

Recognizing warning signs early can help you make an informed decision. Warning signs include using credit cards for everyday expenses, falling behind on payments, or facing foreclosure. It's often best to file earlier to avoid further collection actions and lawsuits.

Next Steps

When you're ready to explore bankruptcy, here are a few things to consider:

• Contact a bankruptcy attorney. The simplest, most direct way to learn about your options is to meet with a local bankruptcy lawyer. They can assess whether Chapter 7 or 13 would be best for you, and many offer a free consultation.
• Gather financial documents. To make the most of your consultation, bring documents related to your income, assets, debts, and expenses. The lawyer would appreciate having these available.
• Consider alternatives. Explore debt consolidation, debt settlement, or credit counseling. Make sure to ask about the potential tax consequences of forgiven debt and the impact on your credit report. In many cases, you'll find you can achieve your goals more quickly and reasonably by filing for bankruptcy—even after taking into account attorney fees.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true—and we wholeheartedly encourage research and learning. You'll find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.