What Is The Leading Cause Of Bankruptcies In The US?

While the 549,577 individuals who filed for personal bankruptcy in 2025 do not represent an overwhelming majority of the US population (0.16% to be exact), that is still a lot of people when taken in context (1 in 625). Even though numbers are still below pre-pandemic levels, US bankruptcies are steadily on the rise. And there are plenty more individuals who struggle along because they misunderstand or are wary of bankruptcy, even though the provision would benefit them. 

Why do so many Americans file for bankruptcy? There are a range of reasons, and oftentimes it’s more about a coalescence of circumstances that lead to money trouble. More often than not bankruptcy is immediately associated with excessive spending or poor financial management, but the reality is generally more complicated. Let’s get into the number one cause of bankruptcies in the US and how filing for bankruptcy in Ohio can offer needed relief.

What Is The Number One Cause Of Bankruptcies In America?

Sometimes, understanding the most common causes of bankruptcy can help individuals to better recognize financial risks, seek assistance earlier, and make informed decisions about debt relief. But more often than not, you’re just living your life and then a combination of less-than-ideal circumstances sets you back on your heels, and you’re suddenly staring financial ruin in the face. 

A recent study’s findings backed up what has held true for decades now: loss of income is reported as the number one cause of personal bankruptcy in America. Medical expenses and illness-related financial problems are also major contributing factors, among others, but losing one’s job, whether due to illness, downsizing, the business closing or another reason remains the top cause of US bankruptcies. It’s also possible that “job loss” could refer to reduced working hours, loss of overtime, or changes in employment–the person still has a job, perhaps, but it isn’t paying what they are used to making and that puts a serious dent in their ability to repay debt while also maintaining their household. Or, a family that didn’t carry much debt previously is now relying on creditors for ever more expensive everyday needs and surprise expenses, and this eventually leads to default.

Whatever the case may be, the fact that loss of employment is the number one cause of bankruptcies in America makes perfect sense, since so many folks are living without much of a financial cushion. It’s reported that as much as 53% of the US population does not have adequate emergency funds to cover living expenses for three months. Since it can take at least three months–often much longer–to find a job once unemployed, it makes sense that folks without a financial safety net would truly be left floundering if they were to encounter job loss. What was once a normal life, with enough money from employment to cover necessities and wants can, overnight, become an untenable situation in which an individual or family simply cannot afford to live. 

So while yes, there are often other factors at play, not having steady income is overwhelmingly cited as the reason that bankruptcy becomes the only viable way forward for many US citizens. Secondary reasons are often listed as stemming from medical issues, be them mounting bills, or medical problems that lead to work loss. The inability to continue working or the loss of work from these circumstances are all related problems, and they make up the vast majority of recorded personal bankruptcy causes.

Common Bankruptcy Scenarios

Elaborating on what we mentioned above, there is usually a combination of factors and issues that lead to personal bankruptcy in Ohio and throughout the US. Yes, job loss may stand out as the most monumental change, but it is often accompanied by other, often smaller-scale or temporary crises. 

A health crisis, which may not sound like a financial problem on its face, can lead to medical bills beyond what a person’s insurance covers. The patient may have to miss work to attend doctors appointments, have tests or procedures done, and then take time to recover. Missed work can lead to missed income, which leaves less funds for debt repayment, such as a mortgage or other loans. If lack of payment goes on long enough, the mortgage lender may choose to file a foreclosure action. It is at this point that an individual may opt for personal bankruptcy (chapter 7 or chapter 13 bankruptcy) to pause harassment from creditors and to figure out next steps–either liquidation or repayment. 

In just a few short sentences we’ve built a true-to-life bankruptcy story that replays every year in the US. Reasons and scenarios will differ for each person, but there is often one major shift that disrupts all the responsibilities a person is juggling every day, and upsets the equilibrium they had in place. Without adequate backup funds or help from their network or community, many people will need to lean on bankruptcy to get through this sort of hardship.

Reasons For Business Bankruptcies In The US

While this article is mainly focused on individuals and the reasons that drive them to filing for personal bankruptcy in Ohio, there is a whole other category to discuss–chapter 11, or debt restructuring. Business bankruptcies happen for a great many reasons, but more often than not, the primary cause behind a business bankruptcy involves the lack of consistent cash flow. This is especially true for seasonal businesses or those whose revenue may ebb and flow across the financial year. Without proper management, money can be ill-spent and a business can quickly find itself without enough to sustain payroll and day-to-day operations.

Here are some of the other common and related causes for business bankruptcy:

• Market changes 
• Competition influx 
• Excessive debt
• Poor financial planning
• Economic downturns
• Ineffective leadership
• Legal issues
• Overexpansion
• Increasing prices and inflation
• Lack of crisis preparedness

There are countless reasons why a business may fold, but any one of them could be enough to set off a chain reaction that ultimately leads to bankruptcy.

When To Speak With an Ohio Bankruptcy Attorney

Although foreclosure, wage garnishment, a lawsuit or utility shutoff threat are common last straws that lead people to explore bankruptcy in Ohio, you absolutely do not need to wait until you reach a critical point to consult with a bankruptcy attorney. 

When you work with an experienced Ohio bankruptcy lawyer, they can offer valuable guidance and help to simplify and streamline the process. They can help you to review your debts and income and evaluate whether chapter 7 or chapter 13 bankruptcy is more appropriate for your situation. With a bankruptcy attorney’s help, you can identify potentially dischargeable debts and available Ohio property exemptions that apply to you.

Almost more importantly than helping you to determine that bankruptcy is a solid relief for your circumstances, a bankruptcy attorney can also help you to establish more sustainable financial habits and utilize financial tools and resources that are designed to help you get back on even footing. At Hausen Law, our mandatory pre-bankruptcy credit counseling classes are there to help ensure that you are making the right decision. And our 720 Credit Repair Program can have you back at a healthy credit score only two years after bankruptcy! 

Bankruptcy Questions Answered By an Ohio Bankruptcy Lawyer

Financial hardship rarely develops from one event alone. Though income loss is the number one cause of bankruptcies in the US today, we know it isn’t the only reason that folks find themselves in need of financial relief. And while you can’t account for everything that you’ll experience, you can try to recognize when your financial situation may require assistance to make it through. 

Whether you’re getting ahead of the worst and seeking early legal guidance or things have already come to a head and financial issues are demanding that you file for bankruptcy now, our bankruptcy attorneys are here to help. If you're struggling to keep up with payments, understanding your legal options is an important first step. Hausen Law can help. You will work with an experienced chapter 7 bankruptcy lawyer who can help you to determine whether chapter 7, chapter 11 or chapter 13 bankruptcy is best in your situation. 

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. Rest assured that our skilled, empathetic team can help you to successfully navigate through bankruptcy and forge a clear path forward.