Is bankruptcy right for me? Signs it's time to consider it

More than 565,000 people and families filed for personal bankruptcy between early 2025 and early 2026, up nearly 12% from the year before. Most of them weren’t overspending. Instead, that financial disaster is the legacy of losing a job, sickness, going through a divorce, or just not being able to keep up with rising costs.

Signs it may be time to look into bankruptcy

No single sign means you must file, but if you’ve noticed several of these, it may be time to think about it.

• You can only make minimum payments, or not even those. If your balances keep growing even though you pay every month, it might be time to pause things.
• Your debts would take more than five years to repay. Add up your unsecured debts (credit cards, personal loans, etc.). If paying them off would take more than five years, bankruptcy may be the better path.
• You're being sued or garnished. A lawsuit or a chunk taken from your paycheck are signs things are getting out of hand.
• You're using credit to pay for basics. Putting groceries and rent on cards you can't pay off just makes things worse.
• You're borrowing from retirement to pay bills. Retirement accounts are usually protected in bankruptcy. Cashing them out to pay debts that could be erased is often a costly mistake.
• You're facing foreclosure or repossession. Filing can pause those actions and, in some cases, help you catch up.

What bankruptcy can and can't do

Bankruptcy can wipe out many unsecured debts, including credit cards, medical bills, payday loans, and old utility bills. It can stop collection calls and lawsuits the moment you file, thanks to a court order called the automatic stay. It can also give you a way to catch up on a mortgage or car loan.

However, it can't erase every debt. Child support, alimony, most recent taxes, and most student loans usually survive. It will also stay on your credit report for seven to 10 years.

Alternatives to try first

Before you file, ask yourself whether one of these could work:

• Calling your creditors. Many will lower your rate or set up a hardship plan if you ask.
• Nonprofit credit counseling. A counselor can go over your budget and help make a debt management plan that lowers interest on credit cards.
• Negotiating a settlement. Some creditors will accept less than the full balance, especially on old debts.
• Doing nothing, for now. If your only income is Social Security or disability benefits, most of it is protected from most creditors. Some people in this situation don't need bankruptcy at all.

Be wary of for-profit debt settlement companies. Their fees can be high, and settled debts can come with a tax bill you didn’t count on.

Bankruptcy isn't a moral failure

Bankruptcy is written into the U.S. Constitution. It's a legal tool, used by families and major companies alike, to deal with debt that can't be repaid. Choosing it doesn't mean you failed.