Bankruptcies Spike as Americans Grapple With Debt and Inflation

Bankruptcies rose last year as American dealt with debt and inflation.

Bankruptcies grew by 16 percent for non-businesses in the period ending December 2023, according to the U.S. Courts. The number of filings grew to 434,064, compared to 374,240 in 2022.

The number could be a sign of the times, experts said, especially as personal bankruptcies had been on a decade-plus of sharp decline. Bankruptcy filings peaked in December 2010, when the number hit just below 1.6 million.

December 2023 marked the end of the fourth consecutive quarter in which bankruptcy filings rose. Business bankruptcies also jumped, by 40.4 percent, reflecting widespread financial difficulties at the personal and company levels.

The uptick arrived as inflation rests at 3.4 percent after reaching a high of 9.1 percent in 2022.

Michael Schwartz, a bankruptcy attorney in Philadelphia, said higher interest rates and minimum payments for credit cards, and the end of the student loan payment deferral, created financial issues for Americans.

"These factors have caused expenses for families to rise significantly and many are resorting to bankruptcy for relief," Schwartz told Newsweek.

'It Can Be a Trap'

Dan Brewerton, a 54-year-old IT worker in New York, found himself filing for bankruptcy after a divorce took a toll on his finances, but he warns others about the many downfalls associated with bankruptcy, which often first appears as an escape.

"At first, it feels like an escape, but I have found it can also be a trap," Brewerton told Newsweek. "You are not allowed to work more than your 40-hour week. Any income above and beyond that is garnished and sent to the bankruptcy trustee for disbursement."

While Brewerton believes Chapter 13 bankruptcy should allow for individuals to work part time to supplement their income, that's not a possibility today.

"Consider your earnings are say $4,000 a month take home," Brewerton said. "You not only pay the trustee north of a third per month but I also have to pay another $1,000 in alimony. So between those two figures, you are left with a very small amount of money to work with."

Everything left over goes to food, gas and bills, he said.

Brewerton found himself filing for bankruptcy because of his ex-wife's lifestyle expectations, he said.

"You end up borrowing money from high-interest loan servicers to support the lifestyle," Brewerton said. "In the end, you wind up with a huge amount of debt that you cannot pay. This person I was married to simply refused to work [but] expected to have the finest things in life."

Despite Brewerton's circumstances, the 16 percent increase in bankruptcies shows that his experience is not unique. A combination of factors contributed to the rise in bankruptcies, and Brewerton thinks they started with stimulus payments.

"The stimulus packages were not a handout," Brewerton said. "They were a high-interest loan that we are paying back by high interest rates."

Inflation and growing student loan and credit card debt play a role, but this reality has been in the making for decades now, Brewerton said.

"In the 70s, my father was the one that worked and my mother stayed home with us five kids," Brewerton said. "Then in the 80s, my elder siblings were out on their own and it was just me living at home. I could start to see a change in the financial structure of the country. For the first time, my mother had to go out to work full time."

The family also had to downsize from their own house to an apartment.

"As the years went by, money did not stretch nearly as far as it once did," Brewerton said. "It wasn't a case of my parents both wanting to work, it was a situation where they simply had to. Both of my parents worked until the day they died despite having 401(k)s, SSA retirement, and so on. This is the new reality."

Brewerton is not alone in feeling this way.

The bankruptcy surge is reflective of a lagging economic situation, said Scott L. Smith, a Louisiana-based attorney who runs DebtReduction101.com.

"The increased bankruptcy filings we see now are fallout from earlier periods of high inflation and economic turmoil," Smith told Newsweek. "People were struggling to respond as their air supply was being slowly choked off. Eventually their options ran out."

Credit card debt hit more than $1 trillion in 2023, and more than 60 percent of Americans say they're living paycheck to paycheck, according to a LendingClub report.

"Our current economy is not as great as the government would like us to believe," Patrick Di Cesare, the founder of the financial education company Basic Financial Literacy, told Newsweek. "Although the stock market is doing great, the fact that so many can't make ends meet is much more telling."

While inflation and debt are hitting all generations hard, young adults and middle-aged Americans might be feeling it the worst. They've had less time and money to put into their retirement and savings and see the current economic environment eating into their budgets.

Still, there are some measures you can take to reduce your likelihood of falling into a bankruptcy filing, Di Cesare said.

"Drive an older Honda or Toyota instead of the brand new car, live with roommates instead of having a place to yourself, live near family members if you can to help with the cost of child care, increase your skill set so you can get paid more, pick up a side hustle," he said.

"Unfortunately there's no magic bullet for people in this situation, other than to spend less and make more money."

If you'd like to share your personal story of bankruptcy with Newsweek, please contact us at personalfinance@newsweek.com.