How to Handle Bankruptcy

The Most Common Causes of Bankruptcy

Couple with bankruptcy papersThe rates of personal bankruptcy have climbed significantly over the past few years. In fact, according to U.S. bankruptcy court statistics, over 1.5 million people file for bankruptcy every single year. And about 97% of those bankruptcy filings are made by individuals, not businesses. With the financial state of the nation and all of its citizens on a steep decline lately, it’s worth exploring what the most common causes of bankruptcy are.

Medical bills

Is it really a surprise to anyone that medical expenses cause people to spiral into uncontrollable debt? In fact, medical expenses make up 67% of yearly bankruptcy cases. And of all of those cases, about 72% of those individuals had health insurance when the medical debt was accrued. So, it’s not only those who don’t have health insurance that are faced with crippling debt due to medical emergencies.

Job loss and reduced income

If you don’t have savings, or the ability to have savings, and then you lose your job or suffer a significant decrease in your income, there’s no way for you to support yourself and your family. Sometimes, you don’t make enough money to prepare for an emergency like this, and then you’re left with no money and the need to file for bankruptcy.

Credit card debt

Bankruptcy papersAfter student loans and mortgages, credit card debt is the third most common type of debt for someone living in the United States. But it isn’t always due to being an irresponsible spender. In fact, most people end up racking up huge amounts of credit card debt because of medical expenses, emergencies, and other unforeseen expenses. The expenses you can’t plan for are usually the ones that are the most expensive and therefore, the most devastating.

Divorce

Divorce is expensive. Even if the divorce goes smoothly, you’ll have to pay legal fees, as well as any alimony, or child support that you may be required to pay after the divorce is finalized. In addition to all of that, the change of income or shared assets you had with your spouse that you no longer have, can be a significant loss to your financial situation.

Student loans

Student loans cost a lot of money. In fact, the average American owes about $37,000 on their student loans. This number doesn’t account for the insane amounts of interest that you’re required to pay alongside the amount that you actually borrowed. It’s a vicious cycle of paying off an amount that rarely changes. Unfortunately, in most bankruptcy cases, student loan debt can’t be discharged. Despite this, it doesn’t stop people from suffering financial crises because of their huge amount of student loan debt.

To avoid foreclosure

Stressed out girlA little over 1% of Americans have to file bankruptcy in order to avoid foreclosing and losing their home. Losing your home would be a devastating loss that would be incredibly hard to recover from, so it’s no wonder that people in this situation chose bankruptcy.

Money management

There are also plenty of bankruptcy cases each year that are caused by bad money management. There are a lot of factors that lead up to this, including inflation, bad budgeting, and uncontrolled spending. Small amounts of debt can build up quickly, a lot quicker than you realize, and it isn’t long before you’re drowning.

What can you do to avoid bankruptcy?

For some people, bankruptcy is the best option for them to get their finances figured out and their life back on track. There are consequences to filing bankruptcy, like a huge hit to your credit score. For other people, intense budgeting and consolidation of debts is a better solution to get the financial freedom that they are seeking. The most important thing, no matter which route you take, is to begin dealing with the problem as soon as possible. The longer you leave it, the harder it will be to fix and the more stressful it will become.

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