The Top 10 Causes of Bankruptcy

During the pandemic, bankruptcy filings dropped as federal aid helped people pay their bills. Unfortunately, bankruptcy filings have been steadily on the rise since then.

According to U.S. Bankruptcy Courts statistics, there were 517,308 bankruptcy cases filed in 2024. That’s a 14.2% increase from the 452,990 filed in 2023 and up from 387,721 filed in 2022.  

As experienced bankruptcy lawyers, we know that the causes of bankruptcy are wide-spanning. We’ll take a look at ten of the most common reasons.

Top 10 Causes of Bankruptcy

Many people are currently facing financial struggles. In the Eastern District of Michigan alone, there were 16,284 bankruptcy cases filed in 2024. There could be any number of reasons for these filings. The top ten most common are as follows:

1. Losing a Job

Budget cuts are causing people to lose their jobs. And finding another can take time – quickly eating away emergency savings. In some cases, a person simply gets behind on payments. Other times, they rely on loans to stay afloat. These can all lead to having to file for bankruptcy.

2. Dependence on Credit Cards

Accumulating credit card debt is a problem for many Americans. Yet, for many facing hardship, credit cards can be the only way to keep up with necessary payments. Unfortunately, paying only the minimum each month along with high interest rates can be a costly mistake that results in bankruptcy.

3. Exorbitant Medical Expenses

It’s sad to say that medical expenses are among the top reasons for filing bankruptcy in the United States. The cost of healthcare is on the rise and insurance companies are increasingly unwilling to cover procedures and treatments. So even for those who are insured, the expenses accrued for treatments that aren’t covered can easily bankrupt a person.

4. Natural Disasters Not Covered by Insurance

Nobody can plan for natural disasters. And just as medical insurance can be remiss in paying for medical procedures, homeowner’s insurance often won’t cover disasters such as tornadoes, earthquakes, and floods. Any one of these scenarios can cause financial ruin. And when the government can’t give enough relief through Federal Emergency Management Agency (FEMA) grants, the best course of action is often a Chapter 7 or Chapter 13 bankruptcy filing. 

5. Going Through a Divorce

Anyone who’s been through a divorce knows that the proceedings are expensive and can result in significant financial loss. In addition, for spouses required to pay child or spousal support, the financial burden is all the heavier. As such, bankruptcy can easily become the outcome.

6. Providing Financial Assistance for Others

More and more people are faced with providing financial support for adult children or aging parents because other avenues are not available to them. This is becoming a very real factor that contributes to bankruptcy.

7. Student Loans

The skyrocketing costs of a college education have left 1 in 8 Americans carrying student loan debt. Added to other debts and bills, attempting to pay off a student loan can become such a burden that it can drive someone easily into having to file for bankruptcy.

8. Inability to Pay Mortgage

Having a home is part of the American dream. But the stress of not being able to pay the mortgage and facing foreclosure is not. As such, many individuals or families will turn to bankruptcy so that they can stay in their homes while seeking relief from other financial burdens.

9. Mounting Home Utility Bills

The cost of basic utilities such as gas, electricity, and water is becoming increasingly out of reach for many homeowners and renters. When added to so many other daily living expenses, it can be difficult to pay for these necessary services. An unsuccessful attempt to juggle these expenses can lead to bankruptcy.

10. Overspending and Splurging

Of course, sometimes bankruptcy is the result of poor management of funds. This is by no means an indictment. With the influx of ads on the internet and television, overspending on needless items is all too easy. The dopamine hit that comes with making a purchase is alluring. And it’s also a quick way to a bankruptcy proceeding.

Do You Need a Fresh Start?

The causes of bankruptcy can seem nearly endless and if you’re facing bankruptcy, you’re not alone. And there’s no reason to feel shame.

Your next step is to consult with experienced and skilled lawyers who can help you begin the bankruptcy proceedings.

Contact us today to get started. And give yourself the fresh start you deserve.