Q1 2025 Bankruptcy Filing Trends Report

We have seen a consistent increase in bankruptcy filings for years as bankruptcies rebound from their historic lows during the pandemic. During Q1 2025, we continued to see this trend with significant filing increases across most chapters and jurisdictions, resulting in one of the highest filing quarters since the COVID-19 pandemic.

1. Quarterly Changes

Consumer bankruptcy filings rose in the first quarter of 2025, with Chapter 7 filings increasing 5.29% and Chapter 13 filings up 5.11%. Chapter 12 filings also nearly doubled, while Chapter 11 cases saw a slight 0.97% decline from the previous quarter.

We see the rise in consumer bankruptcy filings as a lagging indicator resulting from consumers being pushed to their financial limits. Rising living costs, increasing housing and insurance expenses, high interest rates, and mounting debt in both credit card and auto loan sectors have led many to leverage their credit lines more than ever. The strong job market has been supporting the rising debt levels, but continued debt at high interest rates has pushed an increasing segment of consumers over the edge to bankruptcy. 

Resumed collections on student loans is going to throw a grenade on the delicate balance we've seen. Debtor attorneys are already reporting that their phone lines are ringing off the hook with consumers urgently trying to find ways to manage their payments. One debtor attorney recently reported accelerated interest in bankruptcy unseen since the aftermath of the Great Recession. Typically, it takes about 90 days for these cases to start filing in.

Chapter 7 Filings

The quarter-over-quarter uptick in Chapter 7 filings is not surprising because consumers typically prefer to file after the holidays, and debtor attorneys often advise their clients to wait until Q1 or Q2 due to tax return implications.

The national 5.29% increase in Chapter 7 filings doesn’t tell the full story. District-level data shows sharp quarter-over-quarter increases in a number of regions. 

Several large districts - like the Northern and Western Districts of Texas, Southern District of New York, Northern District of California, and Eastern Missouri - saw low or negative Chapter 7 filing growth in Q1 2025, largely due to strong labor markets and stable economic conditions. Unemployment remained low across these regions, and job growth in areas like Dallas, Columbus, and New York City helped households stay current on debts. In addition, many residents in these areas benefit from legal protections that reduce pressure to file, including Texas’s unlimited homestead exemption and New York’s consumer debt reforms.

Chapter 13 Filings

Oregon (+63.8%), Montana (+61.9%), and Connecticut (+58.3%) posted strong gains in both chapters, while smaller districts with higher variance like Alaska (+77.8%) and Northern Oklahoma (+36.6%) saw outsized growth in Chapter 13 alone.

Several districts saw notable drops in Chapter 13 filings, including Western New York, New Mexico, and Kansas - all down double digits. These declines may reflect more consumers shifting to Chapter 7 or struggling to make Chapter 13 plans work amid rising costs.

Chapter 11 Filings

2. Year-over-Year Changes

Looking at the year-over-year changes gives us a clearer picture of the change in filings when you extend the timeline and eliminate seasonal fluctuations. Quarter 1 saw a dramatic increase in consumer filings, with Chapter 7 filings up +12.74% and Chapter 13 filings up +5.99%. Chapter 11 filings, however, dropped by 88.37%.

Chapter 7 Filings

Several districts saw dramatic 30%+ year-over-year filing increases, including Rhode Island and Idaho. Unlike typical high-growth areas, these regions seem to be catching up after years of modest activity.

Few districts saw a year-over-year decrease in filings. Here are the top ten decreases:

Chapter 13 Filings

Chapter 13 filings continue to see steady growth. They were the quickest to recover after the pandemic, and we've seen continued growth since then.

Some districts in this list did not see large increases in Chapter 7 filings. This may be a reaction to differing collection regulations in those districts. In districts like Texas and Tennessee, where foreclosure and repossession can happen quickly, many debtors turned to Chapter 13 to protect their homes and cars. Similarly, in Illinois and Maine, low exemption limits and rising home equity pushed consumers toward Chapter 13 to avoid asset loss in a Chapter 7. These cases highlight three of the main drivers influencing Chapter 13 filing decisions: 

1. Aggressive collection activities that threaten immediate loss of property. 

2. Asset values exceeding exemption limits, making them vulnerable in Chapter 7. 

3. Existing payment arrears that preceded the filing. 

Chapter 7 requires debtors to be current on payments for assets they wish to retain. However, Chapter 13 plans can incorporate catch-up payments for existing arrears.

By contrast, districts like the Middle District of North Carolina, Northern District of New York, and Southern Georgia saw declines in Chapter 13 filings while Chapter 7s held steady or rose. These trends suggest that more consumers in those areas are forgoing repayment plans. This often happens when they lack the income or assets to make Chapter 13 a viable option. In these cases, liquidation may be the only realistic path forward.

Chapter 11 Filings

3. Return to 2019 Filing Numbers

While consumer filings have seen large year-over-year increases, we are still relatively far from 2019 filing levels. At the current rate, consumer filings won't return to 2019 levels until around 2026. There are, however, a couple of factors that could accelerate that timeline:

1. The restart of student loan payments will likely strain consumer budgets. We've already seen reports of increased interest in bankruptcy from debtor attorneys.
2. Consumer access to credit has historically been the #1 factor for predicting bankruptcy filing. We are already seeing a shift toward tightened credit access. 
3. Delinquencies are on the rise. The robust job market currently supports debt payments, but things could change quickly if economic conditions worsen.

Chapter 7

Chapter 7 filings have seen the steepest drop-off since 2019. The number of Chapter 7 filings in Q3 of 2022 was down over 30% from the amount from the same quarter of 2019. This is likely the result of increased property value, a strong labor market, and the general increase in wealth in the years since 2019. 

A couple of districts have seen increases in Chapter 7 filings since 2019. Western District of Wisconsin had the most notable increase at 71.71%, possibly related to struggles in farming, manufacturing, housing affordability, and slow wage growth in the region. Wisconsin also has a special state-specific debt consolidation program called Chapter 128. It is very similar to bankruptcy. These may have delayed Chapter 7 filings while people tried debt consolidation for a while until they couldn't anymore. 

Chapter 7 filings in Texas also increased across the board, likely related to increased population growth during the same time.

Chapter 13

During the pandemic, Chapter 13 filings tanked; however, they were the fastest to recover with a 44% increase from Q3 in 2021 to the same quarter in 2022. Many of the districts with the highest growth during that period are now seeing the year-over-year growth taper out.

Interestingly, there were some districts with more filings in Quarter 3 of 2024 than in the same quarter of 2019:

The districts that saw the most significant decrease in Chapter 13 filings since 2019:

Chapter 11

In contrast to consumer filings, Chapter 11 filings have increased by 16.96% in Q1 of 2025 compared to Q1 of 2019. This rise was likely driven by high inflation, rising interest rates, increased operating costs, and changing consumer behavior. Many small to medium businesses, especially in retail, hospitality, and commercial real estate, faced added pressure from supply chain disruptions, shifting consumer demands, and reduced access to international markets. For companies struggling with debt yet aiming to stay operational, Chapter 11’s restructuring flexibility has offered a critical lifeline amid these ongoing economic challenges​.

4. Market Trends We're Seeing

Mounting Pressure from Student Loan Repayments

Student loan collections have resumed, and a record percentage of borrowers are seriously delinquent. The NY Fed recently estimated that over 9 million student loan borrowers will face substantial declines in their credit standing over the first quarter of 2025.

Debtor attorneys' phone lines are already ringing off the hook, and consumers are urgently trying to find ways to manage their payments. One debtor attorney reported that yesterday marked their busiest day since the aftermath of the Great Recession. Typically, it takes about 90 days for these cases to start filing in, but early signs point to student loan repayment as a growing bankruptcy trigger. For borrowers without income-based repayment relief or sufficient earnings, the return of these monthly obligations is rapidly becoming the tipping point in an already fragile household budget.

Potential Bankruptcy Inflection Point

According to a recent report from CNN, the rate of charge-offs is now higher than the level before the Covid-19 outbreak. Per the NY Fed, household debt has reached an all-time high of $18.04 trillion, driven by record levels in mortgage, auto loan, and credit card balances. Meanwhile, consumer savings rates have significantly declined since their COVID-era peaks. We are seeing the impact of these factors through the rising delinquency rates. A downturn in the labor market or further inflationary pressures could trigger a significant rise in both Chapter 7 and Chapter 13 filings.

Shift from Mortgage-Driven to Consumer Credit-Driven Bankruptcies

During the previous decade, mortgage defaults were the primary driver of bankruptcy filings, as seen in the 2008 financial crisis. However, current reports like TransUnion’s August Credit Industry Snapshot saw serious consumer-level delinquency rates increase across products, except for mortgages. Unlike in past downturns, where mortgage foreclosures pushed filings, we now see bankruptcies tied entirely to credit defaults, a sign that everyday expenses and revolving credit create unsustainable debt loads for many consumers.

Increased Use of Home Equity as a Financial Buffer

According to a recent report from InvestmentNews, nearly half of U.S. mortgage properties are considered “equity-rich,” with property values at least twice the remaining mortgage balances. Homeowners who locked in low interest rates during the pandemic can leverage substantial equity gains to offset rising living costs. This buffer allows many homeowners to avoid bankruptcy by accessing cash via refinancing or home equity loans. Consumers without the safety net from low mortgage interest rates and appreciated property value are facing a much bleaker outlook.

Population Shifts Impacting Bankruptcy Hotspots

The recent uptick in bankruptcy filings in high-growth regions may be partially influenced by population migration to states with favorable tax laws and attractive housing markets. As people continue relocating to these areas, the sheer increase in population alone can drive up filing numbers, creating a statistical impact on bankruptcy rates. Even without significant changes in local economic conditions, more residents inherently mean more potential filings, amplifying the appearance of financial distress in these high-growth regions compared to areas with stable or declining populations.

5. Technology Trends We've Noticed

Utilizing APIs to Automate Bankruptcy Operations

As we’re increasingly seeing, automation through APIs is reshaping the way bankruptcy operations are managed. By leveraging APIs, financial institutions can automate critical workflows like filing updates, case monitoring, and data syncing across platforms, drastically cutting down on manual tasks and reducing the potential for error. While the cutting-edge fintechs were the first to embrace APIs, we've now seen law firms and financial institutions across the spectrum begin to use APIs to automate and integrate their workflows.

Integrated Bankruptcy Management

Integrated bankruptcy management systems are becoming essential as institutions juggle multiple tasks across various departments and systems. A unified approach allows for seamless coordination between collections, legal, and data teams, enabling them to manage every stage of a case from start to finish within one streamlined system. With bankruptcy integration, all teams have access to the same data and insights, reducing redundancies and ensuring that no critical information slips through the cracks.

APIs vs. SFTP

The choice between APIs and SFTP (Secure File Transfer Protocol) boils down to the speed and type of data transfer needed. APIs offer a real-time, always-on connection that’s ideal for dynamic operations where immediate updates and quick response times are crucial. On the other hand, SFTP remains useful for secure, high-volume data exchanges that don’t require real-time access, making it a solid choice for certain bulk data transfers. Each method has its place, but as the industry leans toward real-time data access, APIs are becoming the go-to choice for modern bankruptcy operations, keeping teams informed and agile in a fast-moving landscape. Luckily, we work with both!