Bankruptcy Filings Surge 11% as Household Debt Reaches Breaking Point for Borrowers

Bankruptcy filings are up by 11% with more people and businesses choosing to file bankruptcy in 2025 compared to those who filed in 2024.

Here are the details. Total bankruptcy filings are up 11% with increases in business and personal bankruptcies for the 12-month period ending Dec. 31, 2025. Annual bankruptcy filings added up to 574,314 in the year ending December 2025, up from 517,308 at year end 2024, according to the Administrative Office of the U.S. Courts.

Total bankruptcy filings fell to a low of 380,634 in June 2022 but filings have increased every quarter since then.

More younger people have been filing for bankruptcy, and they’ve been doing so for a while. Bankruptcy filings for 18-to-29 year-olds increased 17% from the first quarter of 2024 to the second quarter of 2024, and filings were up 13% from 2023, according to Forbes. 

A Hard Economy and No Savings

“The high cost of living means that it is more difficult to save an emergency fund or retirement,” Ashley Morgan, a debt and bankruptcy lawyer in northern Virginia, told us. “This means that most people are just a hospitalization or job loss away from incurring substantial debt.”

Even a smaller emergency can be a challenge. Thirty-seven percent of Americans said they would not be able to afford a $400 emergency expense or they would need to borrow or sell something to cover the expense, according to the Federal Reserve.

Morgan’s Gen Z bankruptcy clients have been trying to pay down their debts for years with little success. 

“They have been paying on the credit card for months or years and the balances won’t go down,” Morgan told us. “Often these individuals are also foregoing saving for retirement or even an emergency fund to pay off debt.”

The Reasons Behind Bankruptcy

When faced with growing debt levels, the rising cost of living, and stagnant wages, many of Morgan’s clients are turning to bankruptcy.   

“Budgeting out of debt isn’t always realistic when people are paycheck to paycheck,” Morgan told us. “When life happens and you have debt sometimes the most realistic way of handling things is filing bankruptcy to manage the debts.

“Often doing things like delaying retirement savings or overworking to pay off debt just doesn’t make sense. You need to consider both your quality of life and requirements for the future.”

The Lingering Effects of COVID-19

Some of Morgan’s clients fell into debt during the COVID-19 pandemic and are still struggling to climb out.

“Many people I talk to these days also mention incurring debt during COVID or being unemployed during COVID and never getting back on track,” Morgan told us. 

“Someone who incurred $20,000 in credit card debt during 2020 and 2021 trying to survive might now have $35,000 in debt because the balances slowly creeped up and they have used credit cards to help cover expenses.”

More Debt in the Past Four Years

According to Family Credit Management, Americans seeking debt help are carrying three times more debt than they were four years ago. The average balance grew from $9,573 to $26,119 from 2021 to 2025.

The average balance for millennials tripled from $9,103 to $27,304. Gen Z’s average balance nearly tripled from $5,266 to $14,559.

“Credit is very easy to access today, and younger generations are using it, which can lead to problems quickly when you combine that with higher costs and not a lot of savings,” Michael McAuliffe, President and Founder of Family Credit Management, told us. 

The Bottom Line

The number of people filing both personal and business bankruptcies increased 11% from year-end 2024 to year-end 2025.

Some bankruptcy clients lost jobs or accumulated debt during COVID-19 and are still grappling with big credit card balances. At Family Credit Management, clients are carrying three times as much debt as they were four years ago.

In a challenging economy, many borrowers with no personal savings will reach for credit cards to stay afloat. But this only lasts so long. With the rising cost of living and stagnant wages, many of these same people may find themselves turning to bankruptcy.