Far more Americans are filing for bankruptcy — but maybe not enough, as people don't get 'how good of a deal' it can be

Rebecca Lessley, whose debt piled up over three years after losing her job at the same time she bought a house, told NPR that she felt embarrassed when she filed for bankruptcy this past June.

While she’s still in the process of working out the details, she will most likely pay back her debt with a five-year repayment plan. But she’s no longer ashamed of filing for bankruptcy. Indeed, some of her friends want to know how it goes — because they’re considering the same thing.

While filing for bankruptcy can hurt your credit score, it can also help you build it back up over time.

“People don’t understand how good of a deal bankruptcy is,” Samuel Antill, an assistant professor at the Harvard Business School, told NPR. His research shows that, after filing for bankruptcy, most people’s credit scores recover within a year of filing.

Personal bankruptcies are on the rise

More than half a million personal bankruptcies were filed in the U.S. last year, climbing to 549,577 in 2025 — the third consecutive year of increases, according to a LendingTree analysis of U.S. Courts bankruptcy filing data from 2021 through 2025.

To put that in perspective, 1,489 Americans filed for personal bankruptcy each day in 2025.

The rising cost of living — from housing and healthcare to groceries and insurance — is playing a role.

Many households are bridging the gap with credit cards, but “higher interest rates have made that debt far more costly to carry, causing balances to grow faster than people can pay them down,” Matt Schulz, LendingTree’s chief consumer finance analyst, said in the LendingTree analysis.

“Given that combination of rising debt and sky-high interest rates, it’s not surprising that more people are turning to bankruptcy for relief,” he said.

How filing for bankruptcy works

If you decide to file for bankruptcy, you’ll still need to qualify. You’ll need to prove in court that you are, in fact, unable to pay your debts. If approved, a court-appointed trustee will help you come up with a plan to settle your debt: Chapter 7 or Chapter 13 bankruptcy.

Keep in mind that, even if you do declare bankruptcy, you’ll still be on the hook for certain debts: tax debt, mortgages, student loans, auto loans and child support or alimony.

But it often means that you no longer have to deal with aggressive debt collection agencies because everything is done through the courts.

Chapter 7 bankruptcy erases certain types of debt, such as credit card balances, personal loans and medical bills (it takes about three or four months). While you don’t have to pay back those debts, the court-appointed trustee can sell any property you own that isn’t protected by a bankruptcy exemption. That money is used to compensate your creditors.

To qualify for Chapter 7 bankruptcy, you must either pass a means test or have a below-median level of income for the state you live in.

Chapter 13 bankruptcy requires repaying all or a portion of your debt over a period of three to five years. The amount depends on factors such as the size of your income and the size of your debt, but it’s consolidated into a monthly payment that’s then distributed to creditors.

There are pros and cons to both approaches, depending on your circumstances. For example, if you have property you want to keep, then Chapter 13 bankruptcy might be a better option.

But it’s worth noting that filing for bankruptcy also comes with a cost: between $1,500 and $4,000 in court filing fees and attorney fees, according to Debt.org.

Deciding on a debt repayment option

Bankruptcy should still be considered a last resort, after other options such as debt consolidation or debt settlement.

A certified credit counselor can help you figure out how to get your finances back on track, and whether you can do that without filing for bankruptcy. They can provide advice on debt relief options and help you come up with a repayment plan.