GDP reports suggest the U.S. economy is thriving. But bankruptcies exploded in 2025, especially the most painful kind. When growth and hardship rise together, it’s worth asking: What are the numbers really measuring?
By Peter Reagan
Whenever politicians and talking heads on TV or YouTube talk about the “strength” of a country’s economy, they default to gross domestic product or GDP as the measurement of economic activity and strength.
(Nevermind that GDP has only been used that way since around World War II, according to the Institute of Management Development.)
And like so many other things, what is “new” is often considered “better” and “superior,” whether it’s actually an improvement or not. (I, for one, still prefer the design of the 1966 Corvette over the latest models.)
Regardless, GDP is the accepted yardstick of economic strength. Above 2% annual growth is considered a boom; negative GDP is a recession red flag. Recently, though, I’ve seen some concerning news that’s calling into question GDP’s usefulness as an economic indicator.
Here’s what’s gotten my attention…
What, exactly is gross domestic production?
According to the latest from the U.S. Bureau of Economic Analysis (which is an official website of the United States government, no fake news here!), “real” GDP increased “at an annual rate of 4.3% in the third quarter of 2025.”
“Real,” in this sense, means “adjusted for inflation.” So if we consider the 2.7% CPI reported mid-December, we can estimate that overall economic activity rose about 7%!
First, that’s higher than many predicted.
Second, well, just look over the last 25 years – we’ve only seen four quarters where inflation-adjusted GDP rose 4.3% or higher:
That’s a pretty big deal, right? Cause for celebration?
Well, for a number of reasons, don’t break out the champagne just yet… For some reason, quarterly GDP numbers are expressed as an annual rate – so Q3’s 4.3% (annual) is actually a 1.1% increase over those three months. Still, not bad, right?
If we look at the first three quarters of the year and annualize GDP, it comes in at 2.6% real (after-inflation). Not setting any records, but still, growth is growth!
And if GDP is in fact an accurate measure of how the average American is doing, then we’re doing about 2.6% better overall. On average.
But there’s some less-welcome news alongside the surprisingly-good GDP report…
Growth isn’t evenly distributed
We’ve already discussed what economists are called the “K-shaped economy.” Undoubtedly, some Americans really are doing better than ever…
On the other hand, the same could be said of literally any period of time. Some people increased their income and net worth during the Great Depression! Despite an over-20% unemployment rate and GDP plunging 30%. With those numbers, though, you know the average American suffered terribly. It left a sort of poverty trauma on the parents of Baby Boomers (and my own grandparents, rest their souls).
No matter what happens in the overall economy, some folks do better than others. Through luck or their networks and connections or from deliberate planning (or all three?), we instinctively know that some will do better and others worse. Love it or hate it, that’s capitalism.
Even so, I was astonished to see the American Bankruptcy Institute’s report that overall bankruptcies in 2025 were 11% higher than the prior year.
Compare to our 2.6% annual GDP for the first nine months – and bankruptcies rose 4x faster than GDP!
There’s more, though. Let me report the numbers, then explain:
Personal bankruptcies:
- Total: +12%
- Chapter 13 (repayment plans): +6%
- Chapter 7 (liquidation): +15%
You might not know this, but there are two kinds of personal bankruptcy. You can’t call them “good and bad,” not really – so let’s call them “bad and really bad.”
Chapter 13 bankruptcies are bad. Technically, bankruptcy is filed by individuals or married couples, but the consequences are borne by the entire households – spouses, children and other dependents. This process involves negotiating a payoff plan (usually over 3-5 years) with creditors. Essentially, this indicates people who are still trying to pay their debts, but can’t make monthly payment minimums without some kind of negotiation.
Chapter 7 bankruptcies are really bad. This is usually what people picture when they hear the word: Debts so overwhelming that repayment isn’t possible, assets sold off under court supervision and families forced into this last resort after exhausting every other option. Financial distress at the breaking point.
That’s why it’s concerning that Chapter 7 filings grew 2.5x faster than Chapter 13. It’s a sign of the worst kind of financial strain. The last economic resort.
If that wasn’t bad enough, bankruptcy filings have accelerated toward the end of the year — December filings rose 21% on an annual basis.
There are really only two ways I can interpret this…
- Families are in severe financial distress and it’s getting worse
- People are gaming bankruptcy laws in order to “get a fresh start”
Either way, how can GDP and bankruptcies be rising at the same time?
What does GDP even mean?
Overall, GDP is a measure of how much money changed hands (from buying and selling goods and services). That’s a much more practical metric than, say, a survey asking 300 million Americans how they’re doing financially.
Even the Harvard Business Review acknowledges that GDP “merely measures the size of a nation’s economy” and “was not designed to assess welfare or the well being of citizens.”
That’s the deeper issue with treating GDP as the definitive scorecard of economic health. A surprisingly strong GDP report can coexist with – and even conceal – real economic weakness at the household level. When policymakers focus on aggregate growth while missing where financial strain is actually building, they risk pursuing policies that look successful on paper but fail to improve everyday financial reality.
In an environment like that, it becomes increasingly important to look past headline numbers and think about personal financial resilience. When headlines don’t match your reality, diversification becomes less about chasing returns. And more about reducing volatility regardless of the prevailing economic climate.
Owning physical precious metals isn’t about betting against the economy – it’s about reducing reliance on any single economic measurement, policy or promise. Here’s a straightforward guide to buying precious metals for beginners. And if you’d like to explore diversification with physical gold and silver further, request your copy of the 24-page Birch Gold Group Information Kit (yours free for the asking).
If nothing else, please remember: The map is not the territory. GDP is not the economy – and your personal financial situation is much more relevant and important than abstractions like “gross domestic product.”
Finally, if you’re struggling with extreme financial stress and considering bankruptcy, please consider reaching out to the National Foundation for Credit Counseling. They’re the largest, most established nonprofit network of certified credit counselors offering free or low-cost counseling on debt, budgeting and bankruptcy alternatives online here or at 1 (800) 388-2227.