The number of Americans who file for bankruptcy is growing. More than 500,000 people took this step in 2025, nearly 50% more than in 2022. And the numbers have kept on climbing, with a 12% jump in June 2026 from a year earlier as many consumers struggled to pay their bills.
Bankruptcy filing rising after decline
The number of personal bankruptcies filed annually fell sharply for more than a decade before the recent uptick, hitting a low of about 368,000 in 2022, down from about 1.5 million in 2010.
That number has climbed steadily since 2022.
A 2005 law called the Bankruptcy Abuse Prevention and Consumer Protection Act sparked the earlier decline. Its goal was to make declaring bankruptcy harder and more expensive. Many creditors pushed for these changes because they felt some individuals were abusing the system.
The changes introduced income limits for eligibility to declare Chapter 7 bankruptcy. It also required people to get credit counseling before filing to see whether there was any way they could avoid bankruptcy. It also added a new obligation: Americans now take a course in financial management after they file for bankruptcy to reduce the chance of future money troubles.
One interesting study regarding the legislation’s impact found that it lowered credit card interest rates, but it also prevented some people without health insurance from wiping out their medical debts.
The 2005 changes caused the number of personal bankruptcies to plunge. That ended with the Great Recession, which lasted from late 2007 until mid-2009.
Start your day with essential news from Salon.
Sign up for our free morning newsletter, Crash Course.
This economic downturn pushed up the number of bankruptcies dramatically. But then the number fell from 2010 until 2022, as the Great Recession’s impact gradually receded. The decline continued into the early 2020s because the stimulus checks and more generous unemployment insurance payments the government provided at the height of the COVID-19 pandemic helped keep millions of U.S. consumers afloat.
The numbers began to rise again in 2022 as American consumers began facing increasing stress from income that has not kept pace with inflation and a sharp jump in credit card interest rates.
Lasting changes
Bankruptcy stays on your credit report for up to 10 years. After that, creditors are supposed to treat people who filed for it like anyone else. A study I worked on with law professor Lois Lupica tracked what happened over two decades to both people who had and had not declared bankruptcy. We wanted to see whether those who had filed for bankruptcy really got out of their financial hole.
Our findings were a good news, bad news story. The good news was that bankruptcy was not causing permanent financial stigma. The average person who declared bankruptcy eventually caught up financially with their peers who hadn’t.
The bad news was that it took 15-25 years to recover in almost all financial dimensions. This is longer than those 10 years that the bankruptcy filing stays on your credit report.
In short, we determined that bankruptcy does give people a fresh start, but getting that reprieve takes longer than the law’s intent.
Strategies that can stave off bankruptcy
My wife and I avoided bankruptcy primarily by doing two things.
First, we switched to using cash for most of our day-to-day purchases. When our wallets were empty, we were done spending. I talk more about this in my 2025 book “The Power of Cash.”
Second, we contacted the financial company where we owed our biggest monthly payment. After providing proof of financial hardship, they were surprisingly flexible.
If these two steps are not enough for you, the next step is to consult an attorney who specializes in bankruptcy law. While there are lots of things most people can competently do on their own, filing for bankruptcy is not one of them.
Jay L. Zagorsky, Associate Professor of Business, Boston University
This article is republished from The Conversation under a Creative Commons license. Read the original article.
