When a person or business declares bankruptcy, the money they borrowed stays in the economy - because, as in Chapter 7 filings, those debts are "discharged" and the money does not get paid back to the bank.
Because it does not get paid back, it is that money that some will be able to get ahold of (maybe they sell a product or service) and can pay their interest.
So, bankruptcies provide money in the economy to pay interest on loans.
Here's where some of the money to pay interest on our debt comes from.
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