Millions of Americans file for bankruptcy each year. The reasons are varied and often involve unexpected events.
However, there are some common reasons people file for bankruptcy. They include: Loss of income, high medical expenses, an unaffordable mortgage, spending beyond their means and lending money to relatives or others.
Loss of Income
Loss of income is one of the most common reasons for individuals to file for bankruptcy. Whether due to layoffs, termination or a decision to retire, losing a job can leave people with little or no money coming in. This situation makes it difficult to make debt payments, and it is also challenging to cover other expenses.
Fortunately, unemployment benefits can help to cover living costs while allowing someone to file for Chapter 7 bankruptcy to permanently eliminate eligible debts. If a person earns too much to qualify for this form of bankruptcy, they can still seek relief through Chapter 13 bankruptcy by creating a debt repayment plan.
High Medical Expenses
The financial strain of a medical crisis can send anyone into bankruptcy. This is especially true if the person does not have health insurance coverage or has a policy that does not cover everything.
High-profile cases of people filing for bankruptcy due to high medical expenses may be newsworthy, but these examples represent only a small portion of the bankruptcies that occur each year. Thousands of American families drown in debt from their medical bills.
The number of these medical-related bankruptcies is greater than the number related to other reasons, including lack of income, an unaffordable mortgage, spending beyond their means and lending money to others.
Every year thousands of people turn to bankruptcy as a solution for their serious debt problems. Whether they’re overwhelmed by unexpected medical expenses or struggling with a mortgage that is no longer affordable, the option of filing for bankruptcy offers a fresh start.
Filing for personal bankruptcy can eliminate unsecured debt, halt foreclosures, repossessions and wage garnishments, and protect your property from seizure. You may even be able to reaffirm your current mortgage during bankruptcy proceedings and avoid losing your home. However, it’s important to remember that a bankruptcy will affect your credit and make it more difficult to obtain future loans. This is why many people choose to work with an experienced bankruptcy lawyer.
Spending Beyond Your Means
People often file for bankruptcy when they spend beyond their means. This can happen when a person tries to keep up with the latest fashion trends, or when they have more debt than income.
One way to determine whether you are living beyond your means is to make a budget. Download all of your bank and credit card statements, then add up each deposit (income) and each withdrawal (expense).
If you have more debt than income, it is important to find ways to bring in more money. Getting a side hustle or finding a new job can be a great way to get back on track.
Needing Assistance to Relatives or Others
Whether you’re trying to help a loved one, meet your own financial needs or address another issue, sometimes simply lending money to others can end up costing you big. Depending on the circumstances, some people find it difficult to pay back what they borrow, especially if their credit card debt piles up or they lose a job and need emergency cash.
Even if you have health insurance, medical costs can be prohibitively high, particularly when you add in deductibles and copays. Some people who are not able to meet these expenses end up filing for bankruptcy. This includes people who were unable to find work after losing their jobs.
Poor Personal Finance Choices
Many people find themselves in serious debt due to poor personal finance choices. They may be overusing credit cards or spending beyond their means, which can quickly lead to high levels of debt that become hard to manage.
Even those with health insurance often find themselves struggling to pay medical bills, as the cost of healthcare is skyrocketing. One recent study found that 62 percent of bankruptcy filings were tied to medical bills.
Whether you’re considering filing for bankruptcy or simply trying to manage your debt, it’s important to know the reasons behind the statistics. Taking steps to improve your financial situation can help you avoid bankruptcy and find the right debt solution for your needs. You will need to seek advice from a Harrisburg bankruptcy attorney if you are in a situation where you may want or need to file for bankruptcy.