1,500 Americans filed for bankruptcy each day last year. They should have done this instead.

By Julian Torres

Personal bankruptcy filings surged 47% between 2022 and 2025. Here's what you should do before deciding to file.

The number of Americans filing for personal bankruptcy has been rising - but this extreme measure should only be used as a last resort.

Personal bankruptcy filings have surged 47% from 2022 to 2025, according to a new LendingTree report. That's an average of nearly 1,500 Americans filing each day in 2025.

When you file for personal bankruptcy, you work with federal courts to declare hardship in paying your debts, which results in the creation of a formal repayment plan or a dismissal of your debt.

The trend has continued into the first half of 2026, with a more than 12% increase in personal bankruptcy filings compared to the same time last year, according to Epiq AACER, the leading provider of U.S. bankruptcy-filing data. The recent rise is a result of "higher borrowing costs, increasing expenses and geopolitical volatility," Amy Quackenboss, executive director at the American Bankruptcy Institute, said in a press release.

But falling behind on repaying your debt doesn't automatically mean that declaring bankruptcy is right for your household. Bankruptcy can come with serious repercussions for your credit that can last years after you file, and it could force you to part ways with valuable assets.

If mounting debt is a concern, then now is the time to take action to improve your finances - well before filing for bankruptcy becomes your only option.

"The problem is that the longer you wait, the narrower that window gets and the less options you have," Jeff Judge, a certified financial planner at Chesapeake Financial Planners, told MarketWatch.

So here's what you should do before deciding to file for bankruptcy.

Access your options

Take a hard look at your income, expenses and loan balances to determine whether you are facing a cash-flow problem or a debt-load problem, said Judge. Each one requires different solutions and can have vastly different impacts on your credit score.

A cash-flow problem is when the money to pay your loans is there periodically, just not the week the bill hits, Judge said. That can make debt feel overwhelming - but remedies like changing your lifestyle to free up more money in your monthly budget, consolidating your debt, and negotiating directly with your creditors for temporary hardship relief can set your finances on a track to repay your debt.

A debt-load problem means your balances are so large relative to your monthly income that the gap can't be closed - no matter how you arrange your budget or spending. If the debt has grown to such a scale that all other remedies won't put your household on track to repay in a reasonable window, then options like settling your debt and, lastly, bankruptcy could be examined.

Judge stressed that bankruptcy must be your "final option." The most important thing is to "run down all your other avenues first," he said.

When you should and shouldn't file for bankruptcy

First, it's crucial to understand which types of debt are unlikely to be wiped away by declaring bankruptcy. Student loans can be discharged in some bankruptcy cases, for example, but they are much harder to erase than other kinds of consumer debt. Others can include tax debts and child support.

So if you're a graduate who's struggling to make your monthly payments on a large student-loan balance, then bankruptcy may not offer as clear a path to financial redemption as directly negotiating with your creditors.

On the other hand, if you're a household facing extreme medical debt, steep credit-card bills or other large unsecured debt balances, then bankruptcy could offer a path to a clean financial slate.

The two most common types of bankruptcy are Chapter 7, or liquidation, and Chapter 13, or reorganization.

Chapter 7 is known as liquidation because nonexempt assets can be seized and sold to repay your creditors. What is exempt or not depends on your state's rules, but often includes cash and bank balances exceeding basic needs, valuable collections, investments and, in the worst case, your home.

Depending on your state-specific rules, your income could be too high to file for Chapter 7. So Chapter 13 bankruptcy creates a strict court-approved repayment plan that can last three to five years on average, requiring you to repay your debts over time while keeping more of your assets.

While bankruptcy can be a serious life event, there are also some misconceptions about what it means for your future financial life. At the end of the day, it's a "legally viable way to get a fresh start," Judge said - not a nail in someone's financial coffin.

Bankruptcy may be more common than you think: 1 in 10 Americans ends up filing for bankruptcy at some point during their lifetime, according to LendingTree.

Still, many fear that bankruptcy means losing everything. While it can certainly mean losing some luxury and nonessential assets, such as boats or valuable collections, many states have comprehensive protections that won't leave you worse off than when you filed.

Another concern people have is that their financial lives will be ruined forever if they file for bankruptcy. While the process can certainly hurt some things - like eligibility for certain jobs, or the bankruptcy filing staying on your credit report for seven to 10 years - plenty of people use their fresh start to rebuild their credit profiles and spending habits. Bankruptcy stands as a way to rewrite your future, not be forever reprimanded for the mistakes of your past.

But you should still save it as a last resort.

Andrew Keshner contributed.

-Julian Torres

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07-10-26 0700ET