I have the exact same problem as this guy: WordPress Image Upload Error Post-Processing of the Image Failed - #3 by rob96res
I have narrowed the issue down to Cloudflare with the help of my host. Setting CF in developer mode does not solve the issue, but pointing the domain to my hosts ns instead of CF solves the issue with uploading images.
This issue just started happening out of nowhere around 1-2 weeks ago. So yeah, definitely something up with CF that needs to be addressed.