The Debt Surge & Strategies to Address It

In recent weeks,  the news has been filled with discussion about our walloping $36 trillion in national debt and what the One Big Beautiful Bill might do to manage it. But yesterday, an outlet called “Money Talks News” published an article about what is going on with household debt. The news is not good.

In 2021 Americans were floating consumer debt of $770 billion. The pandemic had actually prompted many of us to reduce expenses and the corresponding debt. Alas, we have put the pounds back on and with gusto. Today we are coping with $1.17 trillion of consumer debt. In a word, our personal debt is growing at twice the rate of the U.S. economy. Motley Fool published this summary last month. Average American Household Debt in 2025: Facts and Figures | The Motley Fool

This has created a quiet, but persistent crisis in family law. When the Divorce Code was first adopted in 1980 the debt constellation was typically a home mortgage and a few thousand dollars of credit card debt and auto loans. Student loans were just starting to make their presence known as a part of this picture. Today the average student debt is just over $38,000.

Clients bring their personal piece of this data into their initial divorce interviews. While the debt can be menacing, housing and auto debt is relatively easy because they are attached to the assets. Typically, student debt is premarital or is presumptively assigned to the person who got the education. But, the other debt is messy and comes pregnant with stories about how it was accumulated and why it should not be split in the same way as the assets.

Ironically, the Pennsylvania Divorce Law does not make any reference to dividing marital debt. Yet courts have routinely done it because it really isn’t possible to do economic justice (the goal of equitable distribution) if the debt is not addressed. People are not very careful about how they accumulate personal debt. Far too many people take it off the shelf without considering the purpose, the cost, or which spouse assumed the liability. We see clients who have $10,000 in a 3% savings account for a rainy day fund while financing $20,000 in credit card debt at 24%. That’s a kind of financial hailstorm. In other settings, one spouse took all the consumer debt because the other spouse was bankrupt or otherwise ineligible to borrow on his/her own.

Many of these clients should be consulting with bankruptcy attorneys. Most credit card debt is not joint. Most student debt is non-dischargeable in bankruptcy. But, there are ways to navigate these turbulent seas which can make the debt more manageable. This is an area where the family law bar probably should be collaborating with lawyers who do personal bankruptcy. In the meantime, people going through divorce with extensive personal debt would be wise to schedule a visit with a bankruptcy lawyer. People don’t like the idea. Yet, if the end goal is to reach retirement with savings to live on, the first order of business is to remove the monkeys residing on your back collecting 20+ percent in annual interest. Two of the common gambits are to convert consumer debt to mortgage debt with a home equity line of credit. The rates for that are closer to 8%. Another, painful choice is to borrow from a 401K or even liquidate parts of it to reduce the overall debt burden. People who did the latter in 2017 not only paid taxes and penalties but also missed the benefit of a fast-rising stock market. Compare that to today however and we are now in a world where the stock market doesn’t know where to go and the bond market is signaling that interest rates will have to rise to meet the need for personal and government financed debt.

If debt, especially unsecured debt (not house or car) is a rock occluding your planned river of savings and investment, pull your credit history and sit down with a bankruptcy attorney. Clients like to think their lawyer knows all the law. Not true. In just about every American law school bankruptcy is an elective (non mandatory) course which comes in two flavors: personal and corporate. At 25% annual interest, this debt can double every 3-4 years and strangle any hopes you have to save for retirement. Lawyers are not cheap but consumer debt interest rates can make them feel like a bargain.

For those amidst a divorce, a developped strategy can be all the more important. Courts have adopted powers to divide debt. With the exception of bankrupty courts they don’t have the right to impair contracts for debt but there are occasions when a resourceful approach to allocating marital debt may benefit both the debtor and the non-debtor spouse.

Addendum: On July 11, the Pennsylvania Bar’s Family Law Section presented a seminar related to bankruptcy and real estate finance strategies as a means to deal with burdensome debt. That program underscored how central debt has become equitable distribution cases. It also introduced new actors on the equitable distribution stage. We expected the presentation of Allegheny County’s Matthew Herron, a longtime personal bankruptcy attorney. But attendees also heard from Adam Funck, affiliated with Garden State Home Loans, who detailed strategies for when and how to time requests for refinance arrangements. Lawyers understand most of the mechanics of mortgage liens but real estate finance is a moving target where timing and preparedness can make the difference between whether or not a re-fi will be granted and at what cost (rate & fees). There is one other character who may come into play. There are not a lot of bankruptcy strategies to address student debt because it is largely non-dischargeable. But there is an emerging specialty that concentrates on student debt and how to manage it. This is itself a ball in play as new student loan regulations are part of the budget bill signed by the President last week.