The $1.23 Trillion Dollar Credit Card Problem: Time is Ticking for Debtors and Creditors

Alexander Hernandez 7 min read

The statute of limitations is the maximum time a lawsuit has to be filed in order to be valid. Due to the effects of COVID-19, not only did credit card balances increase to a record high, but creditors are now facing a time crunch that directly impacts the statute of limitations. As a result, we are seeing more creditors file collection lawsuits, which, in turn, is driving a surge in bankruptcy filings.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on November 26, 2025.

Key Points:

Record Debt: Household credit card debt has reached approximately $1.23 trillion, the highest level ever recorded.
Time Crunch: As the four-to-five-year statute of limitations from the 2020 COVID-19 era expires, creditors are rushing to file lawsuits before their collection window closes.
Filings Surge: This legal pressure is a major factor contributing to the significant increase in both business and personal bankruptcy filings through 2025.

The $1.23 Trillion Dollar Credit Card Problem

The Federal Reserve of New York recently reported that credit card debt reached approximately $1.23 trillion in the third quarter of 2025, an all-time high. But what does this mean for you, and how did we get here?

Besides the obvious ebbs and flows of life that sometimes forces us to use a credit card, I consider the COVID-19 pandemic a hidden, yet powerful, factor. I know this was four to five years ago, but let me explain how the pandemic is a central driver of the debt and legal activity we see now.

The COVID-19 Effect and the Statute of Limitations

During the coronavirus pandemic, many creditors granted forbearances on debt payments. A forbearance is an agreement by the creditor that no payments are due for a specific period. Interest may continue to accrue, but the cessation of payments offers debtors crucial breathing room.

This was a clear lesson learned from the 2008 foreclosure crisis, where a lack of flexibility with mortgage payments led to massive defaults. Creditors are now routinely granting forbearances, sometimes even proactively. If a natural disaster occurs in your area, you are now likely to get an email or text from a creditor saying it’s okay to skip a payment for that month.

My student loan lender even emailed me asking if I wanted a 90-day forbearance after a hurricane last year. Does this mean creditors are considerate, kind, and empathetic with your situation? I doubt it.

Trust me, when a debtor passes away and a probate case is filed, guess who is the first to file a claim against the estate? You thought that death meant you escaped debt? Sorry, it doesn’t. Even in my bankruptcy law textbook, Consumer Bankruptcy Law, I discuss the history of bankruptcy law and how, at one point, creditors would seize a corpse to force the family to pay back the debt.

Creditors were ruthless then, and they are ruthless now.

To a jaded, skeptical bankruptcy lawyer like myself, the flexibility of forbearances simply comes down to dollars and cents. The first rule of law is: don’t waste your time suing anyone who doesn’t have money. Why bother? It’s a waste of time and legal fees. Spending $2.00 in legal costs to get $1.00 back is never a good business model.

In our business, if a creditor gets a judgment against someone who cannot pay, we say the piece of paper the judgment is written on is worth more than the actual judgment.

During the COVID-19 pandemic, creditors weren’t filing lawsuits because the country was shut down, putting the brakes on the global economy. If a debtor isn’t working, there are no wages to garnish, so there is no point in suing them.

So now, four to five years later, what happened? Many people have yet to recover financially. The number of clients I deal with each week whose businesses took a hit, who kept borrowing to keep their doors open, and who have now reached the point of needing to close down, is scary. Or maybe it’s a spouse earning less post-pandemic, and now bankruptcy is more than a passing thought because their credit cards are maxed out.

The Statute of Limitations is Here for Creditors: Tick. Tock.

With credit card debt at an all-time high, more bankruptcies will inevitably be filed this year and in the next few years. The urgency is rooted in the statute of limitations.

The statute of limitations is the maximum time a lawsuit can be filed. For debt-related lawsuits, most states require filing within four to five years. If filed after that time, the lawsuit will be dismissed. The pandemic’s disruption began in early 2020. We are now in late 2025. Tick. Tock.

Creditors are facing a monumental time crunch. Before the statute of limitations expires on those massive 2020/2021 balances, they must file their lawsuits. And in response to that pressure, we are seeing a definitive spike in bankruptcy filings.

Total Bankruptcy Filings (all chapters, 12 months ending Sept 2025) are up 10.6% year-over-year.
Business Bankruptcies (Chapter 7/11/13 combined) are up 5.6% year-over-year.
Non-Business (Personal) Bankruptcies (Chapter 7/13) are up 10.8% year-over-year.

What Happens Now if a Creditor Sues Me?

I can only answer this question with two distinct approaches: the legal approach and the non-legal (or emotional) approach. Both are equally important.

The Legal Approach

The legal approach is straightforward. Filing for bankruptcy, typically Chapter 7 or Chapter 13, may be the answer to discharge or reorganize the debt. Alternatively, maybe a favorable settlement can often be reached with creditors or their collection attorneys. Either way, financial issues can always be resolved, which includes options like refinancing your debt with a personal loan.

The Non-Legal (Emotional) Approach

I know it’s easy to stress out over debt. I’ve been there, done that, but I couldn’t afford to get the T-shirt. Creditors are calling all day. Endless emails and text messages, and even snail mail, to remind you that you are past due on your payment. Like you don’t know! Even in my textbook, I wrote about the direct link between financial difficulties and divorce and the studies showing a direct link between an increase in antidepressant use and suicide during economic recessions.

But if there is one thing I know, it is that you will get through this.

There is strength in numbers. How many people are and were in the same situation as you? How many over the last ten years? What about in the previous 20 years? You can even add me to that list. And yet, we’ve all gotten through this, and so will you. If they made it, and I made it, so will you.

I know it’s easier said than done, but chances are you have been through difficult situations before. You have to remind yourself that you can handle this.

I once asked a real estate developer friend how he could stay so calm as the mortgage foreclosure crisis was in high gear. I wasn’t calm! Several nights each week, I was riding my motorcycle late in the evening to the middle of nowhere to clear my mind, getting home past midnight.

His response put it in perspective for me: Losing millions of dollars was much easier the second time around.

Think about that profound statement. My friend wasn’t saying he was accepting this as his fate. He wasn’t saying he was happy. He wasn’t saying he was going to give up. All he was saying was that he had been through this before, and he would get through it again.

So now apply that mindset to yourself. If this is your first time dealing with financial issues, whether you’re young, out of school, or an established professional, you will get through this. You have the strength and the legal options to navigate this difficult time.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this lin k. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Professor Hernandez is an attorney specializing in consumer finance and debt relief. He is the published author of Consumer Bankruptcy Law (Routledge Publishing) and teaches law and finance courses in both English and Spanish for an international university.