Top 10 Reasons People File for Bankruptcy [2025 Update]

After almost a decade of falling bankruptcy rates, 2024 saw a continued increase in an ongoing rebound of bankruptcy filings in the United States. Total bankruptcy filings rose 14.2 percent across the board in 2024, with an increase of 13.9% in non-business bankruptcy filings–494,201 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.

1. Medical Expenses

Medical expenses are often cited as the top reason for filing for bankruptcy. They add up fast, and depending on what testing, procedures, or treatments you have done, insurance may not cover all the costs. That’s clear, because of the folks who are listing medical expenses as their number one reason for filing for bankruptcy, the majority did have insurance coverage. 

Medical debt can 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 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. It’s easy to see how medical debt is a top reason for bankruptcy in Ohio and across the nation.

2.  Helping Others

The old adage is that you have to help yourself before you can help others, but when it comes to giving financial assistance to friends and family members, that advice can quickly go out the window. Whether a person is helping out adult children or grandchildren, or is giving financial assistance to aging parents or others, it’s hard to say no when a loved one asks for help, even if it’s going to cause a financial burden or strain. If the recipient is then unable (or sometimes, unwilling) to repay the kindness, the situation can quickly spiral out of control. Throw in other common factors like illness, job loss or an accident and the giver could face a financial crisis that only bankruptcy can help to make right. 

3. Loss of Employment

After an unexpected job loss, savings can quickly run dry, if you even have savings to fall back on. A 2023 survey by PayrollOrg found that a majority of Americans–78%–are already under financial strain from one week to the next. 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. 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 insurance even after losing employment, but it is invariably 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 the picture. 

Even if you don’t experience job loss suddenly, if your employer’s business is starting to fail you might experience pay cuts. So you could be employed but earning less than you need to make ends meet. It isn’t always feasible or possible to find another or an additional job, and if you can’t pay your bills, then bankruptcy may be your best option to regain financial footing.

4. Credit Card Debt

Credit card debt can be caused by so many different reasons–it’s not always easily explained by a lack of financial responsibility. While that could be the story, most often individuals fall back on credit cards to pay for everyday essentials like food, clothing and emergency costs when they don’t have available savings. 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, the situation could quickly lead to bankruptcy.

5. Overspending

While this 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, that isn’t always the case. Sometimes budgeting is bad, or 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. Living beyond one’s means often goes hand in hand with credit card debt, and could also be an issue in the face of job loss if quick adjustments are not made to curtail excessive spending.

6. 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 just 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. 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.

7. Student Loans

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, but 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.

8. Home Utilities

On its face, this could sound ridiculous. 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. 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.

9. 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 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.

10. Divorce

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 and 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.

Other Common Reasons For Bankruptcy

While the ten reasons listed above are the most common reasons that bankruptcy attorneys encounter among clients, there are plenty of outlying reasons that may lead a person to file for bankruptcy in Ohio. These can include unforeseen events like natural disasters that destroy property and cause injury or the need to relocate. While we often talk about job loss, it could be that you’re an employer and your business fails. Bankruptcy can allow you to restructure your business debts or wind down the company. 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 be a way to lessen overall debt.

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.