Though unemployment rates are low compared to historical standards, the bankruptcy rate has been surging. In 2024, the amount of bankruptcy filings increased 14 percent over the previous year. In many cases, temporary personal difficulties, such as a job loss or medical crisis, lead people to seek relief under Chapter 7 or 13. However, there are some overall economic factors that experts believe have contributed to the rise in bankruptcies. 

Reasons given as to why more Americans have sought debt relief include the following:

• Inflation — Though the year-over-year inflation rate has stabilized, the cumulative effect of rising prices for essentials such as housing, groceries and utilities continues to weigh heavily on households. Many individuals, particularly those with fixed or stagnant incomes, find it increasingly difficult to cover basic living expenses, leaving little room for debt repayment.

• Interest rates — To slow down inflation, the Federal Reserve raised interest rates several times in the last five years. Consumers with variable-rate debt, such as credit cards or adjustable-rate mortgages, have seen their monthly payments soar. This has pushed some borrowers into default, prompting many to consider bankruptcy. Many homeowners have not been able to generate extra funds through refinancing or home equity loans due to higher interest rates, further limiting their options.

• End to pandemic-related relief — Numerous measures were instituted to help Americans get through the severe economic slowdown caused by the COVID-19 pandemic. Gradually, these programs have expired. One example is the resumption of federal student loan payments in late 2023. This has added another layer of financial strain for millions of borrowers. For some, the added expense has been the tipping point, leading to financial insolvency.

• Underemployment and unemployment in some industries — Not all sectors of the economy have strong employment markets. Workers in industries facing slowdowns or layoffs may find themselves struggling to replace lost income. There are also millions of Americans who have jobs but not earning significant income because of reduced hours or their inability to land a position in the field for which they are trained. 

If you’re facing financial hardship for these reasons or any others, bankruptcy might be the best way to stop harassment from creditors and regain financial stability. Chapter 7 bankruptcy allows for the discharge of most unsecured debts, while Chapter 13 offers a reasonable repayment plan to manage debt over time.

Anker Law Group in Rapid City provides comprehensive counsel on bankruptcy matters to South Dakotans. Please call 605-519-5967 or contact us online to schedule a consultation.