The Top Reasons People File For Bankruptcy
It used to be that people that filed for bankruptcy had bad habits. They shopped too much and lived a life outside of their budget. Today, however, that’s not top reason. Yes, people do still overspend and have to file for BK as a result, but today there are many other reasons people do so.
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People that go bankrupt often do so because of reasons outside of their control. Keep reading to learn the most common reasons people end up in despair.
Medical Reasons
According to a study, more than 2 million people filed bankruptcy due to medical expenses. In fact, it’s the number one reason people file for a BK. Even if consumers don’t get to the point of filing, millions of people suffer as a result of their high medical bills. Believe it or not, a majority of those that filed also had medical insurance. There just wasn’t enough coverage to help them afford the expenses that hospitals and doctors charge.
Credit Card Debt
You probably guessed that credit card debt would be a reason. However, the reason for the credit card debt may come as a surprise. Again, it’s not due to shopping sprees. People use their credit cards just to afford daily living. It could be medical expenses, emergency repairs, or just daily living as a result of job loss or reduced income. Eventually, the bills get so high that consumers cannot afford them.
Company Downsizing
Many companies have changed their pay structure or have downright downsized. This has affected millions of employees throughout the country. Whether they experienced a pay cut or lost their job altogether, it affects their bottom line. Losing income or a job altogether suddenly can have a dire impact on a person’s ability to afford their bills.
Emergency Expenses
It’s recommended that everyone has an emergency fund with at least 3 months’ worth of expenses in it. Six months is even better, but a little is better than nothing. Even with insurance, emergency expenses can wipe a bank account clean. Car accidents, house emergencies, and medical emergencies are just a few examples of what can occur. Without the money to cover these occurrences, you could find yourself in tremendous debt and unable to dig your way out.
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Divorce
Dissolving a marriage is expensive. First, you have to be able to afford the divorce which can result in very high legal fees. Next, you have to divide up the assets and be able to afford certain expenses, such as child support or alimony. If you don’t pay the court ordered expenses, you could have your wages garnished or have a lien put against your property. Many people end up filing for bankruptcy just to get some help in getting their financial life back in order after divorce.
Paying for College
Parents often get in over their heads trying to pay for their child’s education. Student loans come at hefty costs that can put parents in financial destruction. Once the loans are no longer in deferment, large payments are expected. Even the payment plans that are available are often unaffordable, putting unnecessary strain on parents or even the students themselves. While bankruptcy does not dissolve student loans, it could help reorganized the debts to make them for affordable for you.
Overspending
We could not talk about bankruptcy without covering the fact that some people do overspend. Whether it’s due to bad budgeting, an unexpected occurrence, or a job loss, if the spending habits do not change with the income, financial despair can occur.
If you find yourself in financial trouble, the best thing you can do is talk to someone. Start with the creditors who you are having trouble paying. For example, if it’s your mortgage you can’t pay, talk to your mortgage company right away. They may have a payment plan that they can work out with you to help you get caught up. If it’s your credit cards, student loans, or any other loan, do the same thing – talk to the bank.
The earlier you let a creditor know what’s going on with your finances, the more they can help you. If you just let your bills go unpaid and ignored, your creditors will take adverse action against you. It’s hard to dig yourself out of that, which then leads to filing for bankruptcy.
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