Despite the uptick in average filings nationwide, the data suggests that some regions are hit harder by cost-of-living increases and other financial hardships.
For those struggling with overwhelming debt, our best debt consolidation loans can help you gain control of your finances. Let's examine the states where consumer bankruptcies are most prevalent and understand the factors behind these patterns.
Key Insights
- The bankruptcy rate is the number of bankruptcy filings per 1000 residents in a certain region.
- Comparison of bankruptcy filings between states (Alaska vs. California).
- High bankruptcy rates often signal financial trouble in an area, encouraging officials to fix the underlying problems.
Understanding Bankruptcy Rates
Bankruptcy is a legal process that allows individuals or businesses to get relief from debts they can't pay. When people qualify for bankruptcy, they receive court protection and can eliminate or restructure their debts to regain financial stability.
- Consequences of filing: Bankruptcy provides immediate debt relief, but has specific downsides. The filing remains on credit reports for 7-10 years, lowers credit scores by 100-200 points, and may require selling some personal property to repay creditors.
- Economic indicator: Bankruptcy statistics help identify economic problems in communities. When filings increase in an area, it typically indicates residents are facing financial hardships from job losses, medical expenses, or housing costs.
- Public information access: All bankruptcy cases become public record. Anyone can access the basic case information through the PACER (Public Access to Court Electronic Records) database or courthouse files. The American Bankruptcy Institute publishes regular reports analyzing national and local bankruptcy trends.
Types of Bankruptcy Chapters
When you hear about "Chapter 7" or "Chapter 13" bankruptcy, these names come directly from sections in Title 11 of the United States Code. Each chapter represents a different bankruptcy process designed for specific financial situations. Here's what you should know:
- Chapter 7 (Liquidation Bankruptcy): This is like a fresh start option for both individuals and businesses. If you file Chapter 7, a court-appointed trustee will sell your non-protected assets to pay your creditors. Most of your remaining debts are then eliminated. This process typically takes 3-6 months to complete.
- Chapter 11 (Reorganization Bankruptcy): This option helps businesses stay alive while restructuring their debts. If your company files Chapter 11, you can continue operating while developing a plan to repay creditors over time. While available to individuals, it's rarely used due to its complexity and expense.
- Chapter 13 (Repayment Plan): If you have regular income but are struggling with debt, Chapter 13 lets you keep your property while repaying some or all of your debts through an affordable monthly payment plan over 3-5 years. Your payment amount is based on your income, expenses, and types of debt.
Studies have shown that bankruptcy is not immune to racial disparities. Minorities are more likely to struggle with debt due to systemic economic inequalities. Those with access to financial resources who can file are more likely to have their bankruptcy cases dismissed without debt relief.
Bankruptcy Rates by State
According to the 2024 data released by the Administrative Office of the US Courts, bankruptcy filings totaled 517,308 in the year ending December 31, 2024. States with higher poverty rates and populations are more likely to have high bankruptcy filings. The five states with the most bankruptcy filings from the most recent data are:
1. California
California consistently leads the nation in bankruptcy filings because of its massive population, cost of living, and diverse economy. In 2023, California alone accounted for almost 40,000 bankruptcy filings.
2. Florida
Bankruptcy filings in Florida have shown significant growth, with a 25.9% increase in 2024 compared to the previous year. The state faces unique financial pressures from housing market fluctuations, tourism industry volatility, and a large retiree population on fixed incomes.
3. Texas
Despite its strong overall economy, Texas saw nearly 6,000 additional bankruptcies in 2024 above the 25,671 filed in 2023. The state's size, economic diversity, and regional disparities in income and industry concentration contribute to these numbers.
4. Ohio
Ohio's bankruptcy filings climbed to over 24,700 in 2024. While multiple economic factors contributed to this increase, the state's legalization of sports gambling in 2023 has been linked to rising personal financial difficulties among residents.
5. New York
New York experienced a notable increase in bankruptcy filings during 2024. The combination of exceptionally high living costs, rising interest rates, and the expiration of pandemic-era financial assistance created significant financial pressure for many residents.
Local Economic Factors of State Bankruptcy
The kinds of bankruptcy people file differ from state to state based on local economic factors. In states like New Mexico and Ohio, you'll find more individuals using Chapter 7 bankruptcy to wipe out personal debts completely.
On the other hand, business-friendly states such as Delaware, New York, and California see more companies filing Chapter 11 bankruptcy, which allows them to reorganize their finances while remaining open for business.
Factors Influencing Bankruptcy Rates
- Lagging economic indicator: Bankruptcy filings don't predict economic trouble—they confirm it. These numbers rise after financial hardship has already occurred in communities, showing us where economic damage has occurred rather than where it might happen next.
- Post-pandemic financial pressure: The economic aftershocks of recent years continue to ripple through household finances. Many Americans who managed to stay afloat during the pandemic now find themselves underwater as multiple financial challenges converge.
- End of financial safety nets: When pandemic relief programs like stimulus checks, eviction protections, and student loan pauses ended, many people lost crucial financial breathing room. Long-standing financial vulnerabilities have resurfaced without these temporary supports, pushing more households toward bankruptcy.
- Inflation's expanding impact: As prices for essentials like food, housing, and transportation continue to climb faster than wages, family budgets are being stretched. This persistent inflation turns manageable debt into overwhelming financial burdens, making bankruptcy the only viable option for many.
Frequently Asked Questions
What is the most common type of bankruptcy in the US?
Chapter 7 bankruptcy accounts for about 70% of all personal bankruptcies in the US due to its quick process (3-6 months) and complete discharge of eligible debts. Both individuals and businesses use Chapter 7 for a financial reset, though it remains on credit reports for ten years.
How much does it cost to file for bankruptcy?
Depending on the chapter, court filing fees range from $313-$338, while attorney fees typically run $1,000-$3,000 for Chapter 7 and $3,000-$5,000 for Chapter 13. These costs vary based on case complexity and location, with fee waivers available for those who qualify.
Can I file for bankruptcy without an attorney?
While legally allowed, filing "pro se" (without an attorney) is risky due to complex procedures and paperwork. Success rates are significantly lower for those without legal representation, as mistakes can result in dismissed cases or non-discharged debts.
Bottom Line
2024 saw a significant increase in bankruptcy filings across the US, and economists predict that the number will rise by 12% in 2025. US bankruptcy data shows that Americans are struggling, especially in states hit hardest by factors like the expiration of pandemic-era relief, inflation, and rising interest rates.
If you're facing serious debt problems but want to avoid bankruptcy, looking into recommended debt consolidation loans could offer you a way out. Going forward, monitoring these trends will be crucial in anticipating and mitigating financial distress among Americans.
