Consumer bankruptcies

The number of consumer bankruptcies in the US is influenced by a combination of economic, social and legal factors. Key drivers include high levels of household debt, job loss, medical expenses and high mortgage rates. Changes in the availability of credit and reduced stigma associated with bankruptcy have also played a role. Legal reforms, such as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), have influenced filing rates by altering eligibility and costs. Additionally, regional variations in legal cultures and economic conditions further impact consumer bankruptcy trends.

The decline in consumer bankruptcies over the past decade can be attributed to several factors. Economic recovery following the Great Recession, prolonged periods of low interest rates, and improved financial management by consumers have played significant roles. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) made filing for bankruptcy more difficult and expensive, deterring some potential filers. Government stimulus measures, particularly during the COVID-19 pandemic, helped prevent widespread financial distress. However, it's important to note that medical expenses, job loss and high levels of household debt continue to be major contributors to consumer bankruptcies.

The increase in consumer bankruptcies between 2023 and 2024 was driven by several economic and financial factors. Rising interest rates significantly raised borrowing costs, making debt repayment more challenging for households. Inflation further strained budgets by increasing the cost of goods and services, while the expiration of pandemic-era relief measures left many consumers without financial buffers. Elevated household debt levels and higher delinquency rates reflected growing financial stress. Additionally, the resumption of student loan payments in late 2023 compounded financial pressures, leading more individuals to seek bankruptcy protection as a means of managing their debt burdens

Consumer bankruptcies in 2025 are expected to rise due to several key factors. Persistent inflation and high interest rates continue to strain household budgets, making debt repayment challenging. The expiration of pandemic-era relief measures has left many without financial buffers. Rising household debt levels, now at $17.95 trillion, and increased credit card balances contribute to financial stress. Post-pandemic shifts in consumer spending patterns and higher labor costs in industries like casual dining further impact financial stability.