It’s a financial situation that feels hopeless and scary: bankruptcy. Unfortunately, it is also a situation that an increasing number of Americans find themselves in.
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According to the American Bankruptcy Institute, data from Epiq AACER shows individual chapter 7 bankruptcy filings have increased 15% in the first nine months of 2025. [1] That amounts to 249,152 filings so far this year as compared to the 216,773 filed last year for the same period. Individual chapter 13 filings also increased by 4.3%.
“The sharp rise in individual bankruptcy filings this September compared to 2024 highlights the mounting financial pressure on households across the country,” said Michael Hunter, vice president of Epiq AACER. “Chapter 7 filings surged 19% year-over-year, and the growth in active Chapter 13 case inventory suggests more consumers are turning to bankruptcy as a necessary financial reset. We expect this upward trend to continue, with a strong likelihood of accelerating into 2026.”
Pressure from inflation has also left households struggling, with a July report from Indeed finding that inflation outpaced wage growth for 43% of Americans. [2] It also noted that while recent wage growth was more concentrated in high-paying jobs, “low- and middle-wage jobs have seen more modest pay gains at or below the pace of inflation.”
In a Newsweek report on the bankruptcy numbers, legal scholar Sara Greene said: "I think this trend will continue if interest rates remain high (or go higher), as debt servicing burdens will continue to weigh on vulnerable households. Further, we haven’t seen enough inflation relief, and if these pressures related to inflation continue (particularly for food, rent, energy, etc.), I think we will see this bankruptcy trend continue." [3]
What does it mean to file for bankruptcy?
Bankruptcy is an option when you are facing serious financial difficulties. Chapter 7 bankruptcy is a way to legally discharge unsecured debt, such as credit card debt, medical debt and personal loans, by a court order from a bankruptcy court.
Chapter 7 bankruptcy will not erase student loans, tax debt, alimony or child support. It is the most common type of bankruptcy, and allows people to keep essential possessions. It typically takes four to six months from filing to discharge.
Pros of filing for chapter 7 bankruptcy also include:
- Ending aggressive action from collectors.
- Exemptions will likely allow you to keep the possessions and property you need to survive.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
It will, however, severely impact your credit score, and can remain on your credit report for up to 10 years. You will lose your credit cards, and could potentially lose luxury items, expensive vehicles not covered by exemptions, and investments and savings that are not in retirement accounts.
Before filing, you will be required to undergo pre-bankruptcy credit counseling. This process can help you learn if there are ways to avoid bankruptcy.
Bankruptcy is an option for people facing crushing debt to get a fresh start. It is, however, typically viewed as a last resort, for people who have no other option to repay their debts. Signs that you might want to consider chapter 7 bankruptcy, according to Debt.org, include: unsecured debt equals more than half your annual income; it would take more than five years to pay off your debt; your debt is taking a toll on your relationships and health; even with a budget, you have little or no disposable income; you earn less than the median wage for your state. [4]
The court will apply a “bankruptcy means test” to see if you qualify to file for chapter 7 bankruptcy. Your income in the previous six months must be below the median income in your state to pass. If you fail this step and your income is over the limit, you can deduct some expenses and the court will determine if your disposable income is low enough.
If you do not qualify for chapter 7 bankruptcy, chapter 13 bankruptcy may be an option for you. It is for people who have regular income and could pay their debts in part, but whose debts are overwhelming. If you file chapter 13, after three to five years of making monthly payments, the rest of your unsecured debt may be canceled, according to Debt.org.
Life after bankruptcy
Since you will not be able to secure any credit, you will need a plan for how to live within your means. You also need to learn to keep track of your bills and make payments on time. If you get a secured credit card, and make on-time payments, you can start to rebuild your credit score.
The stark bankruptcy numbers for 2025 are a reminder that building an emergency fund is one of the most important steps you can take to ensure financial security. Without an emergency fund that could sustain you for three to six months, any financial setback — be it the loss of a job, car or home repairs, or illness — could mean having to rely on credit to survive, which can end up sending you into a cycle of debt.
Start your emergency fund by setting aside an amount of money that you can afford each month, no matter how small, and depositing it into a high-yield savings account. Don’t touch your emergency fund unless it is a true emergency — that is, you are unable to cover needs, such as rent or health care, as opposed to wants, such as entertainment or lifestyle purchases.
Alternatives to filing for bankruptcy
There are other options if you do not want to take the step of filing for bankruptcy.
You can try and work out agreements yourself with your creditors; if you let them know that you may have to file for bankruptcy, they may be more inclined to work out a repayment plan with you.
You can also seek help from a nonprofit credit counseling agency to implement a debt repayment plan. They can help you with a plan that could lower your interest rates and set monthly payments that you can afford.
A debt settlement agreement is an option where creditors agree to accept less than what you owe to settle your debt. These terms are negotiated by debt settlement companies. Be sure to investigate your options and choose a reputable company since there are many debt relief scams.
You could apply for a debt consolidation loan from a bank or a credit union, but you must be able to, in turn, make your payments on the loan every month. If you take out a secured loan, you are also risking the asset you put up as collateral.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
American Bankruptcy Institute (1); Indeed (2); Newsweek (3); Debt.org (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.