Personal bankruptcy inquiries are surging: 4 alternatives to consider now

Amid today's economic hurdles, Americans are increasingly finding themselves at a financial breaking point. As a result, interest in personal bankruptcy is climbing. According to the latest data from LegalShield, a legal services company, bankruptcy inquiries surged nationwide in the first quarter of 2025, hitting the highest level since early 2020. This uptick is happening on the heels of a third straight quarter of elevated consumer stress, indicating that "heightened financial strain" may be the new norm for Americans. 

And, there are likely a few drivers behind this trend. Right now, for example, credit card debt is at all-time highs, interest rates remain stubbornly elevated and the cost of living isn't budging much, even as inflation cools. In turn, many households are finding it hard to keep up with the minimum payments on their credit cards and other debt, let alone pay down balances. In this environment, filing for bankruptcy might seem like the only way out. And for some, it is. 

But bankruptcy isn't a good solution for everyone, and it comes with serious long-term consequences. Before heading down that path, it's worth understanding what bankruptcy really means for your finances — and what other routes you might want to try first. 

Chat with a debt relief specialist about the options available to you now.

4 bankruptcy alternatives to consider now

Let's be clear: While there are alternatives to consider, Chapter 7 and Chapter 13 bankruptcy both serve an important purpose, especially for people who are buried in debt with no realistic way out.

Chapter 7 bankruptcy wipes out most unsecured debts — think credit cards and medical bills — in a relatively short time. But you'll need to pass a means test to qualify, and in some cases, you may have to give up valuable assets to satisfy your creditors. Chapter 13 bankruptcy, on the other hand, lets you keep your property while you repay a portion of your debt over three to five years through a court-approved plan. It's a better fit for people with steady incomes who want to avoid losing their assets.

Still, both types of bankruptcy can damage your credit score for years, stay on your record for up to a decade and make it harder to borrow money. That's why bankruptcy is usually seen as a last resort, not a first option. So, if you're feeling overwhelmed but haven't hit rock bottom, you may want to take the time to consider other options, which include:

Debt settlement

Debt settlement (also known as debt forgiveness) is a negotiation strategy where you (or the debt relief company you hire) work with your creditors to settle your debts for less than you owe in return for a lump-sum payment on the account. This approach can significantly cut down your debt — often by 30% to 50% or more — but it's not without risks. 

There may also be tax consequences, for example, since forgiven debt can be treated as income by the Internal Revenue Service. And not all creditors will agree to settle, either. That said, if you're already behind and bankruptcy is on the table, debt settlement may be a faster, less damaging alternative.

Check your credit card debt forgiveness eligibility today.

Debt consolidation

Debt consolidation rolls multiple debts into one monthly payment by utilizing a loan with a lower interest rate to pay off what's owed. If you have good credit, a traditional debt consolidation loan through a bank or credit union can make repayment more manageable and save you money over time. You'll need a decent credit score and borrowing profile to qualify through this route, though.

But if your credit score has taken a hit or you're struggling to qualify for a new loan, a debt consolidation program might be another route. These programs work similarly to traditional debt consolidation, but the money is borrowed from a debt relief company's third-party partner lenders. These lenders are accustomed to working with those in serious debt, so they may approve you to borrow with a lower-than-average credit score or higher debt-to-income ratio. However, the rates on these loans tend to be higher than traditional debt consolidation loans due to the increased risk.

Balance transfers

A balance transfer credit card can offer a temporary break from high interest if you qualify. These cards allow you to move existing credit card balances onto a new card with a 0% intro APR for a set period (typically up to 21 months). During that window, every dollar you pay goes directly toward your balance, not interest.

But these cards usually require good to excellent credit, and you'll often pay a balance transfer fee of 3% to 5% on any amount you move to the new card. Once the promo period ends, any remaining balance will be subject to the card's regular interest rate, which could be higher than your current rate. If you can pay off the balance during the promotional period, though, this option can be a powerful way to reduce your debt.

Debt management

A debt management plan is a structured repayment program typically administered by a credit counseling agency. With a debt management plan, you make one monthly payment to the agency, which then distributes the funds to your creditors. In many cases, they'll work with your creditors to lower your interest rates, waive certain fees and stop collection efforts.

That said, you usually have to close your credit card accounts while on the plan, and the program can take several years to complete. Still, it's a solid choice if you're still able to pay what's owed but need help organizing and optimizing your repayment process.

The bottom line

Personal bankruptcy may be the right choice for some people who are dealing with high-rate debt right now, but with inquiries rising sharply and more people reaching a financial breaking point, it's important to explore all your options before pursuing this route. The alternatives can also provide relief — and in many cases, preserve your financial future in ways bankruptcy can't. 

The smart path, though, ultimately depends on your debt, your income and your long-term goals. So, before making a decision, consider speaking with a debt relief professional to map out your next step. You might find you have more options than you think.