Why Do People File For Bankruptcy? Top 10 Reasons [2026 Update]

Total bankruptcy filings rose 12.2 percent in the 12-month period ending March 31, 2026. That’s 581,570 non-business filings recorded, to be exact. There are plenty of reasons why someone may choose to file for chapter 7 or chapter 13 bankruptcy in Ohio, and at Hausen Law we’ve seen it all. Here are 10 of the most common reasons for filing bankruptcy that our Ohio bankruptcy lawyers regularly see.

Increasing Bankruptcy Filings

After over a decade of falling rates, filings for bankruptcy in Ohio and in the United States have been on an upward trend. Starting in 2024 and on into 2026, we’ve seen a continued increase of bankruptcy filings in the United States. Why do people file for bankruptcy? There are plenty of reasons, and we’ll get into a few of them here, but suffice it to say that special provisions and temporary relief from the pandemic years had a lot to do with it. Once those programs ended in the different world that emerged post-pandemic, we’ve seen increasing pressure on businesses and everyday people who are struggling financially. While a 12% jump from one year to the next may not seem that extreme, the increase from 2022 to 2026 data in chapter 7 filings alone is a much more dramatic 58%. Clearly, something is happening out there.

Why People File For Bankruptcy

Overspending is the commonly assumed reason behind the need to file for chapter 7 or chapter 13 bankruptcy, and it can be a major contributing factor, but that isn’t always the case. Sometimes budgeting is bad, received advice was lousy, or it could be that someone really did just lose track of spending and got in over their head. Inflation can also play a role here, as the cost for common things that someone regularly buys can rise to a point where their standard of living is no longer tenable. If they weren’t paying attention, this sneaky overspending can eventually lead to a financial crisis. 

We can’t touch on absolutely every reason why people are filing for bankruptcy in Ohio and beyond, but we can certainly uncover some of the most common reasons that our Ohio bankruptcy lawyers encounter when helping clients. Here’s what we observe locally, along with broader national reasons.

1. Loss of Employment or Income

Cost of living, inflation, housing, everyday living expenses and more are all on the rise. This is leading to record levels of household debt and dwindling savings. In this volatile environment, it’s no wonder that personal bankruptcies are increasing year over year. Add in the loss of employment, and you have a perfect financial storm. Without savings to fall back on in the event of an unexpected job loss, available funds can quickly run dry, and debt can quickly accumulate past manageable levels. Even if you qualify for unemployment compensation, it’s only going to be a fraction of your former income, and there is a limit on how long you can claim; pandemic-era leniency is a thing of the past. 

On top of somehow having to take care of monthly essentials and bills, health insurance may also be gone. COBRA is a way to keep the same insurance plan after losing employment, but it is always going to be more expensive than when an employer was contributing. Without a solid job opportunity in sight, the situation could seem hopeless. That’s especially true if illness or an accident is also part of why work ended.

For other folks, they may not lose their job entirely, but if the employer’s business is starting to fail, they might experience severe scheduling or pay cuts. Or perhaps work hasn’t changed, but inflation is making it impossible to keep up–data shows that’s happening, with the median average monthly income reported by debtors filing for bankruptcy as 4% higher, while monthly expenses were 5% higher.

They could then end up working but unable to meet their monthly bills and also pay for household necessities–it could be impossible to make ends meet. If an additional job isn’t possible in your situation, then bankruptcy may be your best option to regain financial footing, since the costs of life don’t disappear when a paycheck does. Even if you are able to regain a good position with a liveable wage, the potential months of accumulated debt during a period of unemployment could have creditors coming for you. In any or all of these cases, filing for bankruptcy in Ohio can help.

2. Medical and Health-Related Expenses

Medical expenses are often cited as one of the top reasons for filing for bankruptcy, and they often happen in tandem with other disruptions, like job loss or reduced earning ability. Meanwhile, costs add up fast, and depending on what testing, procedures, or treatments you have done, insurance may not cover all the costs. Typical coverage is 80%–for very high medical bills, that remaining 20% out-of-pocket expense, combined with time off of work can be just enough to tip someone into insurmountable debt. Of the folks who are listing medical expenses as their number one reason for filing for bankruptcy, the majority did have insurance coverage, so it’s clear that exorbitant costs are a large part of what’s to blame. 

Beyond the individual themselves, others in the household may now have increased temporary or long-term caregiving responsibilities, further reducing the earning potential for the family as a whole. Escalating bills and reduced income can combine to create a worst case scenario from which bankruptcy is the only clear exit.

Medical debt can also go hand-in-hand with other bankruptcy indicators, like a delay in paying other bills or a reliance on credit card debt while a person struggles to pay for their health needs. Job loss is also a contributing factor, since medical coverage is often linked to employment, and in fact, the two often create a vicious cycle in which someone cannot work because of illness, and so loses the coverage they need to get better so that they can get back to work. Savings then dwindle and they’re thrown further into debt. A study published in the American Journal of Public Health linked medical expenses and medical problems causing work loss with an overwhelming 66.5% of bankruptcies. On top of that, data shows that 6% of U.S. adults owe over $1,000 in medical debt and about 1% owe more than $10,000. 

It’s also true that today’s health insurance policies often have many coverage gaps, high deductibles and copays, narrow networks and other factors that can lead to the unanticipated accumulation of high cost bills. When these points are all taken together, it’s easy to see why medical debt is a top reason for bankruptcy in Ohio and across the nation.

3. Credit Card Debt

Credit card debt can be caused by so many different causes–it’s not always easily explained by a lack of financial responsibility. Instead, credit cards are more often used to help households bridge temporary financial gaps, but then revolving balances that can’t easily be paid in full can become difficult to escape when income is already stretched.

Individuals often fall back on credit cards to pay for everyday essentials like food, clothing and emergency costs when they don’t have enough available savings during tight financial periods. This can work well if they have enough regular income to pay off their credit cards each month. But if someone is forced to rely heavily on credit card debt while also undergoing other stressors, such as job loss, illness, or an accident or other emergency, then the situation can easily get out of control. The debt can become more than they can easily repay and paired with what’s often a ridiculously high interest rate and other fees, the situation could quickly lead to bankruptcy.

In truth, credit-card problems are often a symptom of another financial problem. Credit cards are often most individuals’ last ditch effort to get other expenses under control. Some may even employ multiple cards, using one form of credit to pay another debt. But when life gets too expensive, this complex web of debt deferral gives way and there is no protection anymore. This is when bankruptcy can save the situation.

4. Divorce and Separation

Divorce is an expensive process. Depending on the outcome of the proceedings, you could suffer serious financial losses or have to shoulder a portion of your ex-spouse’s debt. On top of those potential outcomes, there’s the fact that splitting up will naturally result in an immediate doubling of household costs, since you both now have to pay for an individual residence, utilities, and all the other costs of daily living. The difference is that you’re only working with one income. If you are also paying spousal or child support, on top of the costs associated with relocation and repayment of debt, your situation could feel dire. Should you then face job loss or an accident or serious illness, you could be in a prime position to experience a financial crisis. While domestic support obligations, legal expenses and any other debt resulting from a divorce decree are generally not dischargeable, bankruptcy may be a way to lessen other debts so that you can more easily manage what matters most while trying to keep afloat financially. There’s a lot to know about bankruptcy and divorce–they can interact in complicated ways. It’s best to work with an experienced Ohio bankruptcy lawyer if you find yourself facing both at the same time.

5. Mortgage Debt and Foreclosure

If unexpected expenses weigh you down and then on top of that, you also experience job loss or illness, you could find yourself behind on mortgage payments and staring down foreclosure on your home. Home mortgage debt is one of the highest amounts of debt that the average American will take on board. In general, a lender will initially ensure that your income allows you to make your monthly payments, but if things change in your life and you’re still paying the same mortgage bill while making less income, the combination could lead to an unsustainable financial situation. It could also be that a lender approved your loan, even though it was more than you could easily afford. Or maybe your mortgage interest rates are variable, and when they change due to inflation, previously affordable mortgage payments become unreasonably high and make payment impossible. 

Whatever the case, if you fall behind on your mortgage payments, a lender does have the right to foreclose. Bankruptcy puts the brakes on that process with the automatic stay. If you end up passing the means test and file for a chapter 7 bankruptcy and if the equity in your home is less than the state-set exemption limit, you’d likely be in the clear. For those who need to file a chapter 13 bankruptcy, past-due mortgage bills could be wrapped into your repayment plan. In both scenarios you can avoid foreclosure through bankruptcy. While renters don’t face foreclosure, they may face eviction given the same set of circumstances. The risk of eviction can be another reason to file for bankruptcy in Ohio.

Oftentimes foreclosure and other housing-related costs can become problematic when paired with other major life events, like job loss, divorce, illness or income reduction. Increased household expenses and other financial emergencies can also contribute to the strain. Continuing as you were could be unsustainable given your current financial situation. This is when you can rely on the bankruptcy provision for much-needed relief. It isn’t simply a way to eliminate debt, it’s a way to keep a roof over your family’s head. Of course exactly how things pan out and whether your home is safe will depend on a few key factors–your Ohio bankruptcy lawyers can answer your foreclosure questions and bring you some clarity.

6. Business or Self-Employment Debt

Small-business owners sometimes personally guarantee loans, use personal credit cards for business expenses, or otherwise become personally responsible for obligations associated with the business. If your business fails or debt related to your company becomes insurmountable, creditors will come after you for repayment. 

For self-employed individuals who own sole proprietorships, they are legally seen as the same entity as the business. Financial trouble can arise from situations like declining sales, loss of a major customer, high overhead, equipment-related expenses, and inventory costs. You can also face increasing commercial leases on your business premises, and business credit cards could be a tempting way to cover debt that you can’t otherwise afford. Tax obligations and unexpected shutdowns could lead to a situation in which your business earnings aren’t enough to handle all the expenses you’re dealing with. If you have personally guaranteed business loans, filing for bankruptcy can allow you to restructure your business debts or wind down the company. 

7. Emergencies and Unexpected Bills

A common recommendation is to save 20% of your income and put it aside in an account you can’t easily tap into. This fund can help to pay for emergencies and unexpected repairs or bills, and can really save the day in the event of job loss. But as we noted early on, the majority of Americans are struggling to make ends meet from week to week–there often isn’t room for savings. In fact, in a study by Kaiser Family Foundation, it was found that 30% of Americans wouldn’t be able to afford an unexpected $500 medical bill. 

The same is likely true of an expected car repair, breakdown of a major home appliance, and more. If you’re traveling and are injured, you may not be able to find a medical provider who is in-network, and that alone can result in some astronomical charges. 

Sometimes there isn't one dramatic financial crisis, just an expense the household doesn't have enough savings to absorb. For instance, according to the Federal Reserve's 2026 report, 59% of adults experienced at least one type of major unexpected expense during the previous 12 months. These expenses run the gamut, but the most common causes for financial strain were major vehicle repair or replacement, major home or appliance repair, and unexpected major medical expenses. 

When a household is already carrying debt or has limited savings, an emergency expense can trigger a chain reaction. Long story short, if someone doesn’t have enough money put aside for life’s unexpected expenses, then when these things happen, it could lead to unmanageable debt and a financial situation that is best resolved by bankruptcy.

8. Education and Tax Debt

This is an all-too-common story these days–you spend years studying hard and getting perfect grades in college, only to find that after graduation, you can’t find a reliable job in your field. Maybe the job market is saturated, maybe potential employers demand experience you don’t have, or maybe the position is becoming obsolete. For example, artificial intelligence is leading to the automation of many routine entry-level tasks and positions, making work directly out of school for some fields more difficult to obtain and less lucrative than before. In fact, recent data shows that roughly a third of current college students have changed or considered changing their major due to AI concerns.

Whatever the case, you can’t find a good paying job and you still have to repay those exorbitant student loans. On top of that, you also need to handle normal, everyday expenses, like food, rent, and auto maintenance. If an emergency or accident should happen, how will you make it through? Since you have to pay back those loans, you might start leaning on credit cards to pay for necessities. But this is a slippery slope. 

Student loans are generally not dischargeable in bankruptcy, but filing for bankruptcy in Ohio might be a way to clear other debts so that you can focus on repayment and get back on your financial feet. If your bankruptcy attorney can prove that you are suffering undue hardship in repaying loans, you may get some leniency here, but in general, student loans cannot be cleared. But bankruptcy might be the way that you can handle other financial needs that have led to excessive debt.

There’s a similar story for tax debt–it generally cannot be discharged in bankruptcy, but it can still be weighty and oppressive, nonetheless. For some individuals, federal, state, or local tax obligations can become difficult to manage, particularly when combined with other debts. When tax debt accumulates and begins to accrue interest and penalties, the situation goes from bad to worse. Whether a particular income-tax obligation may qualify for discharge depends on several factors. You’ll need to consult with trusted and experienced bankruptcy attorneys to understand your situation more fully.

9. Car Loans and Transportation Costs

Unless you’ve been through it yourself, transportation problems can create more financial pressure than you might initially expect. For instance, vehicles today are more expensive than ever–both new and used. That means high monthly vehicle payments, and if you live in a household that has multiple financed vehicles, consistent well-paying work is a must. In most places in the state and country, employment and vehicles are inexorably tied together–one often begets the other. You need a reliable vehicle to get to a job, and you need a job to pay for a reliable vehicle. 

Unfortunately, when you’re dealing with a fairly new vehicle, this often leaves auto owners with negative equity. That means that the amount you owe is more than the vehicle is worth, since there is a sharp depreciation drop off in the beginning of car ownership. Should something happen and a loss occurs, insurance may not cover everything. Then you’re left with out-of-pocket expenses and potentially no way to get to work to fund repairs. Beyond this, you could be looking at additional repairs or even repossession if other debts have caused you to fall behind on payments. 

On top of everything else, insurance and transportation costs–think gas, repairs, maintenance, tolls, etc.–are only rising. For someone who needs a vehicle to get to work, transportation problems threaten income, making the financial consequences compound. If any part of the puzzle comes loose, you could be looking at bankruptcy.

10. Home Utilities

On its face, this might not sound plausible. But if you’ve paid attention to the rising costs for basic utilities like electricity, water, and gas, you can quickly see that just a few high bills in a row could put a vulnerable person on the brink of financial crisis. Most folks don’t have a large cushion of excess funds.

The very basic household needs are more expensive every day, and if you add on cellular phone service, internet service, and other modern day technologies that have become more or less vital to everyday life, the situation gets even worse. If you’re behind on your bills, utility companies do have the right to shut off service. Bankruptcy is a way to prevent that, since the automatic stay gives you and your bankruptcy attorney time to sort through your case without being hounded by creditors or utility providers. It’s also a good way to handle excessive debt caused by utility bills. In fact, working with an Ohio bankruptcy lawyer and a court-appointed trustee, you may even be able to have some or all of your past due utility bills discharged or wrapped into a consolidated repayment plan. If service has already been shut off, a bankruptcy attorney can advocate for a reinstatement of service.

Other Common Reasons For Bankruptcy

Apart from these common reasons, there are countless other situations that could lead to bankruptcy. 

These can include unforeseen events like natural disasters that destroy property and cause injury or the need to relocate. Major personal losses, like the loss of a family member can also create a situation that leads to bankruptcy, especially if that person was providing a majority of financial support to the family. It’s also possible that a civil lawsuit judgment is too much of a burden to bear financially. While some legal judgments cannot be discharged in bankruptcy, it could still be a viable way to lessen overall debt.

It’s also true that troubles often come in pairs or groups. Maybe one issue is doable, but when illness, divorce, and job loss all hit you at once, it could feel impossible to cope financially, let alone emotionally or mentally. And with recent data showing that 59% of adults experienced at least one major unexpected expense in 2025, it’s a reality that is inevitable for a majority of the population. Knowing your options and understanding that you have legal recourse is half the battle. 

Does Bankruptcy Clear All Debt?

The short answer is no, bankruptcy will not clear every kind of debt that a person might carry. That said, there are exceptions to most rules. For the best, most comprehensive legal advice on your financial situation, contact our Ohio bankruptcy lawyers.

Bankruptcy Questions Answered By an Ohio Bankruptcy Lawyer

Whatever the cause of your current financial stress, know that there is a way forward. At Hausen Law, you can work with an experienced chapter 7 bankruptcy lawyer who can help you to determine whether chapter 7 or chapter 13 bankruptcy is best in your situation. Reach out to speak with an expert–our Northeast Ohio Bankruptcy Attorneys are ready to weigh in. 

Hausen Law is happy to serve all of Northeast Ohio, including the Akron, Canton, Cleveland, Columbus, Dayton, Cincinnati and Youngstown communities. Contact us today to set up a free consultation or to inquire about our credit counseling and credit repair programs. We can help you to successfully navigate through bankruptcy and beyond.