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It has been quite a few years since personal bankruptcies hit the headlines. Before the COVID-19 pandemic, personal bankruptcy filings were averaging about 750,000 per year. Then stimulus checks and loan forbearance rescued many consumers, and only 517,308 cases were filed in 2024. Now, bankruptcy filings are on the rise again — along with consumer debt.

Just for perspective, bankruptcy reached epic proportions in 2005, with more than 2 million personal bankruptcy filings — a rush to file just before the Consumer Protection Act introduced stricter filing requirements. Then things settled down. But here we go again.

Personal bankruptcy filings increased by 11 percent in the first half of 2025, compared with the previous year. And that’s with an economy that is still in relatively good shape with low unemployment, despite tariffs and predictions of an economic slowdown.

While the stigma of bankruptcy has been erased in recent decades, it can still disrupt your life for many years. And if you act in time, you may be able to avoid this drastic step.

So, before the desperation sets in, it’s important to get unbiased, consumer-focused help. That means avoiding late night television commercials and contacting the National Foundation for Credit Counseling at 800-388-2227 to be connected to a nonprofit counseling agency that can help you work with your creditors, and only use bankruptcy as a last resort.

The U.S. Bankruptcy Code is federal law. But each state can set its own limits on how much property (home equity, vehicle, tools of trade, etc.) can be excluded from a bankruptcy filing. Some states are more generous and others are stricter than the federal standards, so it’s important to know the rules in your state.

All bankruptcy cases are handled in federal courts. For individuals there are two basic categories of bankruptcy filing: Chapter 7 is a complete plan of liquidation, while Chapter 13 includes a repayment plan. A chapter 7 bankruptcy remains on your credit report for 10 years, while Chapter 13 follows you for seven years.

But it’s not just the financial implications of a bankruptcy that will haunt you. FICO estimates that it takes about five years for a credit score to fully recover, assuming you subsequently use a “secured” card and pay on time and in full. Your bankruptcy is a matter of public record, and it will come up when you are considered for a job or you try to rent an apartment, and among your social media connections.

Of course, some obligations are not discharged in bankruptcy. Child support is not waived by bankruptcy, and it is almost impossible to get student loans discharged in bankruptcy.

Finally, bankruptcy is definitely not a “do-it-yourself” project, and you should be counseled by an attorney who specializes in this process and knows your state laws. Beware of making some payments to favored creditors just before filing bankruptcy, since there is a lookback period of 90 days for ordinary creditors and one year for family members or business partners.

Once a bankruptcy is filed, there is an automatic stay against creditor collections. But that is the calm before the storm, when a judge determines how your assets are distributed to creditors (in the case of Chapter 7) or agrees to a plan of payment under Chapter 13. It’s an ugly process.

Those are the basic legal facts of bankruptcy, but no one can really quantify the stress of debt unless you’ve been through it. First word of advice: Don’t go through this alone.

While you may be reluctant to let family members know you’re drowning in debt, this is not something you should hide from your spouse. Only by facing up to the issues — no matter what your age — can you take the first step toward dealing with your debt.

Nonprofit credit counselors will review your entire situation. If it’s just a matter of bad money management, they can help you organize your life and get back on track. Or they can contact your creditors, asking them to lower the interest rate, and accept a smaller monthly payment. They’ll even recommend a bankruptcy attorney, if they think it’s appropriate.

The absolute worst thing you can do is listen to those “debt freedom” commercials that direct you to stop paying your bills, and send money to them so they can “negotiate” on your behalf. You’ll further ruin your credit. And some angered creditors may even seek to garnish your wages!

So, here’s that important number again for the National Foundation for Credit Counseling, with its non-profit member agencies you can trust: 800-388-2227.

If you’re up in the middle of the night worrying about debt, or ducking calls from creditors, or hiding bills from your spouse — now is the time to get help, before the inevitable bankruptcy rush. And that’s The Savage Truth.

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(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)

©2025 Terry Savage. Distributed by Tribune Content Agency, LLC.