TikTok says bankruptcy is a hack. Here’s the truth.

Searches for “file bankruptcy yourself” have increased 600% on TikTok. “How to File for Bankruptcy” is up 92% in the past month. Young makers call bankruptcy ‘the best thing I’ve ever done’, with millions of views. And now the financial establishment is clutching its pearls.

The point is: the TikTokers are partly right. But do the experts warn them? Many of them are wrong too, just in a different direction.

Let me explain.

The TikTok take: bankruptcy as a ‘clean slate’

In TikTok’s #FinTok community, a growing number of young creators are reinterpreting bankruptcy. Instead of the shameful failure story most of us grew up with, they present it as a strategic financial move—a way to wipe out crushing credit card debt and start over.

And they’re not entirely wrong to question the old story.

That’s not a TikTok opinion. That’s research from the Federal Reserve.

What the experts are doing wrong

Most “expert” responses to this trend follow a predictable script: bankruptcy ruins your credit for seven to ten years, you’ll never get a mortgage, it should be an absolute last resort.

But here’s what the data actually shows:

According to the Federal Reserve Bank of Philadelphiait takes approximately 18 months after discharge for credit scores to return to pre-bankruptcy levels. A LendingTree Survey found that nearly two-thirds of filers have a score of 640 or higher within two years.

Compare that to working through a debt management plan for five years while your retirement account sits empty. The math doesn’t lie.

What TikTok is doing wrong

But before you file based on a 60-second video — and I say this as someone who went bankrupt in 1990 and rebuilt everything from scratch — the viral leaves out the following:

• Student loans usually survive bankruptcy. Federal student loans require a separate legal process, called an “adversary proceeding,” to be forgiven – and that’s difficult. If student debt is your biggest problem, bankruptcy alone won’t solve the problem.
• Not everyone qualifies for Chapter 7. There is a means test. If your income is above your state’s median, you could end up in Chapter 13, which requires a 3- to 5-year repayment plan.
• Forgiveness is now taxable. Beginning January 1, 2026, student loan forgiveness under income-driven repayment plans will be treated as taxable income. A borrower who has $50,000 forgiven could owe about $10,850 in federal taxes.
• It’s a public record. Bankruptcy filings are accessible to anyone searching court records.
• Some debts cannot be repaid. Recent taxes, child support, alimony, and certain other obligations survive bankruptcy.

The real story: Bankruptcy IS a powerful tool – when used correctly

Here I say goodbye to both the TikTokers and the pearl clutchers.

Bankruptcy is not a ‘hack’. It is a legal right. It exists because lawmakers understood that people and businesses sometimes face circumstances beyond their control — and everyone, including creditors, gets a fresh start.

Bankruptcy is not a failure. It is a legal instrument designed to give people a fresh start. The shame around it is manufactured – and it traps people in situations that serve their creditors, not themselves.–Steve Rhode

I filed for bankruptcy in 1990 when my real estate company failed. It felt like the end of the world. But it became the catalyst to understanding that my fears were clouded by emotions and not logic. I then founded a credit advice organization, helped thousands of people and built a career around providing honest debt advice.

Why bankruptcy often beats math

When I look at the numbers objectively – as a company would – bankruptcy often comes before any other debt relief option:

The bankruptcy wave is real – and it’s not a bad thing

The numbers tell a bigger story. According to the American courts and the American Bankruptcy Institute:

The number of consumer Chapter 7 filings rose 15% to 332,706 in 2025. Individual registrations increased by 12% overall. ABI Director Amy Quackenboss noted that “higher borrowing costs, persistent inflation and geopolitical uncertainty are leading more households and businesses to seek a financial fresh start through bankruptcy.”

And this trend is accelerating. In December 2025, consumer sign-ups increased 21% year over year. Experts expect the number of cases to continue to rise until 2026.

This is not a crisis. These are people who use a legal instrument that exists for exactly this purpose.

What you should actually do

If you’re in debt and TikTok’s bankruptcy videos have caught your attention, here’s my advice after helping people with debt since 1994:

• File not based on a TikTok video. Get the facts for YOUR situation first.
• Know ALL your options. Bankruptcy, settlement, credit counseling and doing nothing are all on the table. The correct answer depends on your specific math.
• Protect your pension. Never cash out a 401(k) or IRA to pay unsecured debts. Those accounts are protected in bankruptcy; Looting them to avoid being filed is the worst possible move.
• Talk to a bankruptcy attorney. Most offer free consultations. They can tell you whether you qualify and what it actually looks like.
• Take the Find your path quiz. It takes five minutes and gives you a personalized recommendation based on your real situation – not a viral video.

Frequently asked questions

Is bankruptcy really a “financial hack”?

Not the way TikTok frames it – but it IS a powerful, legal tool that often produces better results than alternatives. Federal Reserve research shows that filers recover credit scores faster than those who remain in financial distress. The real question is not whether bankruptcy “works” – but whether it is right for YOUR situation.

How quickly does your credit score recover after bankruptcy?

Faster than most people think. The Federal Reserve Bank of Philadelphia found that credit scores return to pre-bankruptcy levels in about 18 months. A LendingTree survey found that nearly two-thirds of filers reach a score of 640+ within two years, and the average score five years after filing is 672.

Can you file for bankruptcy on student loans?

It is possible but difficult. Federal student loans require a separate proceeding against the opponent, where you must prove “undue hardship.” Most filers cannot pay off student loans through a standard bankruptcy. Private student loans may be a little easier to pay off, but there are still legal hurdles.

Which debts cannot be repaid in the event of bankruptcy?

Recent tax debts (typically less than three years old), child support, alimony, most student loans, debts due to fraud, and court-ordered restitution typically survive bankruptcy. Credit card debt, medical bills, personal loans, and most unsecured debt can be forgiven.

Should I Try Debt Settlement or Credit Counseling Before Bankruptcy?

Maybe, but know the full costs. Debt settlement charges a 15-25% fee plus taxes on amounts forgiven. Credit counseling debt management plans last four to five years, and the opportunity cost to your retirement savings can exceed $400,000. Bankruptcy costs $1,500-$3,500, lasts 3 to 4 months (Chapter 7), and protects your retirement accounts. Do the math for your situation using the Find Your Path Quiz.

(Source: Updraft | WebProNews | American courts)