The Economy Is Growing — So Why Did Personal Bankruptcies Just Jump 11%?
Paychecks are still arriving, unemployment sits near historic lows, and the economy keeps growing. So why are hundreds of thousands of Americans filing for bankruptcy right now, and who is actually at risk if the trend keeps accelerating?
The Administrative Office of the U.S. Courts reported on October 22 that bankruptcy filings reached 621,111 in the 12 months ending September 30, up 11.4% from a year earlier. The economy those filers live in is still growing. Real GDP grew at a 2.2% pace in the second quarter, unemployment stands at 4.2%, and weekly jobless claims fell to 194,000, one of the lowest readings of the past year.
The two sets of numbers fit together once you see where the pressure comes from. It comes from the cost of carrying debt. Paychecks are still arriving. They simply stretch less far than they did, and more people are filing for bankruptcy while still employed.
Paychecks Still Arrive, but the Cushion Is Gone
Nonbusiness filings, mostly individuals and families, made up 594,057 of the total and also rose 11.4%. Total filings are up about 63% from their June 2022 low of 380,634. They remain far below the roughly 1.6 million recorded in 2010. Filings in 2022 were unusually low because stimulus savings and loan forbearance were still holding households up.
Those savings have run out. The Bureau of Economic Analysis puts the personal saving rate at 4.1% in August, down from 5.2% a year earlier. Real average hourly earnings, which adjust wages for inflation, fell to 11.24 in September from 11.38 in January. Over the same stretch, the average credit card rate at commercial banks rose to 21.19% in August, its highest reading of the past year.
That debt is concentrated among households with the least to fall back on. The bottom half of households by wealth holds 51.6% of all household consumer credit, per the Distributional Financial Accounts. A recent National Financial Capability Study from the FINRA Foundation found that the share of adults spending more than they earn rose to 26%, an all-time high for the survey. Middle earners showed some of the largest declines. Consumer sentiment of 48.1 in September tells the same story from the household side.
Small Businesses Are Taking a Faster Exit
Business filings rose 12.5% to 27,054. Epiq’s numbers are worse. Elections under Subchapter V, a simplified Chapter 11 process for small companies, reached 2,442 in the first nine months of the year, up 46%. Some of that jump reflects Congress making it easier for more small businesses to file, so it exaggerates how much new distress there is.
Even so, Bloomberg reported this week that America’s truckers are on the brink as carrier bankruptcies pile up. A struggling small employer usually cuts hiring and investment well before it files. Today’s filings point to weaker local payrolls ahead.
What Would Turn Filings Into a Credit Crisis
Rising filings and a credit crisis are different things, and so far the data show only the first. The Fed’s credit card delinquency rate fell to 2.85% in its latest reading, down from 2.95% in late 2025 and far below the roughly 6.8% peak of 2009. The Sahm Rule recession indicator reads 0.00.
Two signals matter most. One key signal is the next quarterly delinquency figure. If it turns back up while unemployment stays low, that would show interest costs alone are pushing borrowers under. Jobless claims are the other signal.
A sustained climb toward 250,000 would add lost income to the strain of high rates. That is when card issuers, small-business lenders, and retailers that depend on discretionary spending would start to feel it. For now, the jump in bankruptcies shows weak household balance sheets that the growing economy has kept out of view.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
