Bankruptcies Are Up 12% — These 5 Money Moves Can Help You Stay Ahead of Debt
With the cost-of-living crisis worsening and inflation running rampant, how can Americans protect themselves from bankruptcy?
Bankruptcy filings jumped 12.2% from mid-2025 to mid-2026, according to U.S. Courts. Even more worryingly, it reflects a broader trend of bankruptcies rising every year since 2022. Bankruptcy filings have skyrocketed 60% from 2022 through today. It certainly doesn’t help that inflation has outpaced earnings for 93% of American workers three years running, per a 2026 Monster report.
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So what can you do? Make these five moves to prevent bankruptcy.
1. Spot the Financial Warning Signs
Most people don’t go from financially healthy to bankrupt overnight. And just because you’ve managed to pay all your bills on time so far doesn’t mean smooth sailing.
One of the clearest early warning signs is using credit cards for essential spending without being able to pay the balance off in full each month. Other flashing red lights include taking paycheck advances or borrowing money to repay existing loans.
“Review the last three to six months of actual spending," said bankruptcy attorney Ashley Morgan. “Don't just estimate what you think you spend; most people underestimate and are shocked when they see their actual spending. If someone spends $500 more than they earn every month, that's a $6,000 annual shortfall before interest.”
2. Create Breathing Room in Your Budget
Start with the easy stuff, by cutting back on meals out and entertainment, and canceling nearly all of your subscriptions. Go back a year to find all your subscriptions, including those that bill annually.
Unfortunately, for some families that still isn’t enough to create sustainable savings. Too many households get in over their heads with large structural expenses like housing, cars, insurance and childcare.
Those households have a choice: either find a way to earn more money or make major changes like moving to a more affordable home and/or area.
3. Build an Emergency Fund
Curveballs will hit you every year, without exception. A few months ago, perhaps it was a major car repair, next month it could be a medical bill, a few months from now it will be a home repair.
For people with an emergency fund, these bills are annoying. For people with no cash cushion, they can derail their entire lives, driving them into debt and eventually bankruptcy.
Start manageable by aiming for a $500 emergency fund. Then aim to get to $1,000, then one month’s living expenses. Eventually, aim for three- to six months’ living expenses in your cash cushion, but accept that you won’t get there overnight.
Set up automatic transfers from each paycheck to gradually build your emergency fund over time, without you having to remember to move the money.
4. Shed Debt
Debt is what pushes people into bankruptcy. If you don’t want to end up there, start digging yourself out of it.
That starts with not taking on any more debt. Avoid payday loans, paycheck and other cash advances and buy-now-pay-later plans. Next, stop using your credit cards.
“Continuing to use a credit card while trying to pay down an existing balance will result in more interest, since credit card interest is based on daily average balances," said Morgan.
High interest, at that. The Federal Reserve reports the average credit card interest rate at an eye-watering 22.36%.
Use the debt snowball strategy to gradually knock out your debts one by one. Start with your smallest debt, then once that’s gone, you’ll have even more money each month to put toward the next smallest balance, and so forth.
5. Negotiate Early & Get Professional Help
If you proactively contact your creditors, many will offer help. But the further you fall behind, the fewer your options.
“Many loans offer forbearance, repayment plans and partial payment arrangements, but most people never ask," said bankruptcy attorney Phillip Zagotti at North Star Law Firm. Even credit card companies sometimes offer hardship programs.
You can also explore nonprofit credit counseling to help with a realistic debt management plan and discuss alternatives to bankruptcy. Beware of for-profit debt relief companies demanding up-front fees or promising guaranteed outcomes however.
By the time most people start thinking about bankruptcy, they’ve already dug themselves into a deep hole. Start climbing out of it before your debt and spending habits reach that point, and you can avoid the nightmare of bankruptcy.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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