Personal Bankruptcies Keep Climbing—Here’s What to Expect in 2025

The newly released final data for personal bankruptcy filings in 2024 completes the full-year picture and confirms a continued upward trend in filings (Exhibit 1). This rise is expected to persist into 2025, as financial distress, particularly among nonprime borrowers, continues to grow, as evidenced by rising delinquencies in consumer loans such as auto and credit card debt. Over the full year, total personal bankruptcy filings increased by 14% year-over-year (YoY), with Chapter 7 and Chapter 13 filings rising by 19% and 7%, respectively. This steady uptick aligns with broad expectations given the current economic backdrop. Despite a strong and resilient labor market, financial distress is mounting for subprime and near-prime consumers, potentially driving further increases in bankruptcy filings.

Exhibit 1

Understanding the Growth in Filings

Personal bankruptcy filings have been on the rise since bottoming out in 2022, a trajectory confirmed by the latest data. The 14% increase in overall filings for 2024 is a continuation of the trends observed in 2023 when filings saw a 16% YoY rise. This pattern reflects a normalization following the historically low levels during the pandemic, when stimulus measures, forbearance programs, and temporary relief policies suppressed bankruptcy activity.

The breakdown between Chapter 7 (liquidation) and Chapter 13 (restructuring) filings also provides key insights (Exhibit 2). The 19% YoY increase in Chapter 7 filings suggests more households are resorting to full debt discharge, while the more modest 7% increase in Chapter 13 filings indicates a stabilization in the relative proportion of restructuring-based bankruptcies. This shift marks a return to pre-pandemic trends after the temporary pandemic-era surge in Chapter 7 filings.

Exhibit 2

Outlook for 2025

With financial distress mounting among nonprime borrowers and delinquencies in consumer loans still on the rise, the upward trend in bankruptcy filings is expected to persist through 2025. This steady increase aligns with broader economic pressures and shifting credit market conditions. However, absent a significant economic downturn, filings are likely to continue increasing at a moderate pace rather than spiking dramatically. With filings still below pre-pandemic norms, the credit landscape remains relatively stable from a historical perspective.

The normalization of the Chapter 7-to-Chapter 13 mix suggests that borrowers are no longer experiencing the extreme liquidity crises that led to the pandemic-era skew toward Chapter 7 filings. Instead, the balance between liquidation and restructuring relief points to a steady adjustment as households navigate an evolving economic landscape.

While bankruptcy filings are no longer at Covid-era historic lows, they remain far from post-GFC peak levels, reinforcing the expectation that filings will continue to rise steadily in 2025 without reaching a tipping point. This measured increase aligns with broader economic trends and the resilience observed in the labor market. For credit market participants and policymakers, the focus should be on monitoring how consumers continue to adjust to economic shifts, particularly as interest rates and inflationary pressures shape financial behavior in the year ahead.