When Is Bankruptcy the Right Move?

Seeking protection from creditors can provide a lifeline, but there are plenty of trade-offs.

Man with past due bills and foreclosure notice
(Image credit: Getty Images)

The COVID-19 pandemic in the U.S. officially turns one year old in March. But despite statewide lockdowns, business closures and widespread layoffs triggered by COVID, personal bankruptcy filings have not increased. Data through November from the American Bankruptcy Institute shows that filings were down 35% from 2019.

Robert Lawless, a pro­fessor at the University of Illinois who specializes in bankruptcy law, credits the economic stimulus enacted in early 2020, which included a moratorium on debt collections, for the decline in bankruptcy filings. Families are spending less and saving more, which is also slowing filings, he says. But this trend could change in the months ahead. In his research, Lawless has found that people tend to struggle financially for two to three years before deciding to file for bankruptcy. If you’re worried about not being able to dig yourself out from under your debts, here’s what you need to know.

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Rivan V. Stinson
Ex-staff writer, Kiplinger's Personal Finance

Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher. She is currently assistant editor, personal finance at The Washington Post.