Journal / Essay · Debt

The Math of Bankruptcy

Bankruptcy is supposed to be the reset button — the last resort that actually resorts to something. It has a price tag too, and it doesn't reset everything.

And Then You're Dead · August 2026 · 3 min read

For most of the 2010s, personal bankruptcy filings were falling — a low-interest, post-recession decade made it possible for a lot of households to avoid the courthouse entirely. That trend reversed, and it's kept reversing for three years running.

The Trend Line

After bottoming out at a 16-year low in 2022, the number of Americans filing for personal bankruptcy has climbed every year since.

Chapter 7 — full liquidation, the faster and more common path — accounts for roughly 60% of cases. Chapter 13, which restructures debt into a 3-to-5-year repayment plan instead of discharging it outright, makes up most of the rest.

What's Actually Driving It

Ask why people end up in bankruptcy court and one cause outweighs every other, by a wide margin.

66.5% of bankruptcy filers cited illness or medical bills as a contributing factor — the single largest cause, ahead of job loss, divorce, or any other reason measured.

That figure comes from a peer-reviewed study in the American Journal of Public Health, not an advocacy estimate. The math of medical debt in this journal already covers how that bill gets that large in the first place. This is what happens after: the debt doesn't go away, it goes to court.

The Reset Button Costs Money

Bankruptcy is supposed to be the option available to people who have run out of other options — which makes its price tag a strange design choice.

Fee waivers exist for filers under 150% of the federal poverty line, and courts allow the filing fee itself to be paid in installments. Neither of those covers the attorney fee, which is where most of the real cost sits. Legal aid clinics and pro bono referrals exist too, but they're limited, oversubscribed, and not available everywhere — meaning the people most likely to need bankruptcy relief are also the ones most likely to find the door to it locked behind a bill they can't pay.

What It Still Doesn't Erase

Not every debt disappears on the other side of a filing. Student loans, the largest single debt category for many filers, have spent decades functioning as close to bankruptcy-proof.

Discharging a student loan requires proving "undue hardship" — a standard courts have applied so narrowly that between 2011 and 2019, fewer than 0.1% of bankruptcy filers even attempted it, mostly on their own attorneys' advice not to bother. Of the small number who tried anyway, close to 40% won some or full discharge — the odds were never as hopeless as the reputation, just widely believed to be. A 2022 Department of Justice policy change formalized a more consistent review process; in its first ten months, 632 cases were filed under it, and 99% of the ones decided so far ended in full or partial discharge. The rule didn't get easier to meet so much as easier to actually get in front of a judge for — most people still don't know that's changed.

And Then You're Dead

A system built as the last resort for people who've run out of money still asks for money up front. The people arriving at that door are disproportionately there because they got sick, and the debt that put them there is disproportionately the kind the door doesn't fully open for anyway. None of this makes bankruptcy the wrong move — for a lot of filers, it's still the best math available. It just isn't the clean reset the word implies.

That's it. That's the whole thing.

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