Those who end up in the bankruptcy process do not do so lightly. Bankruptcy comes with a lot of hardship and is the last resort after a lot of financial trouble. Those who go into bankruptcy usually end up losing a majority of their properties in exchange for wiping out their debts.
So what makes people file for bankruptcy? Here are the top 10 reasons:
1. Medical bills
An illness or an accident can leave one with huge bills and they aren’t always fully covered by insurance. Expensive doctor consultations, tests and treatments can easily drain out life-savings and push people into huge debt to meet the medical costs besides their usual bills, all while one is unable to work.
In such a situation, entering the bankruptcy process becomes the best option. In fact, a Harvard University study indicated that medical expenses are the biggest cause of personal bankruptcies.
2. Loss of income
One depends on their income to pay their bills, and any loss of it – in the form of job loss or cutback in number of hours – can be a devastating blow to finances. It can be exceptionally hurtful to high-wage earners because finding another job that pays as well can be a time consuming process. And losing a job also means one loses any medical insurance their employer provided.
3. Out of control spending
In today’s world where access to credit is easy and desirable things are many, credit card bills and installment debt can quickly spiral to dizzying heights. If one tries to offset them by consolidating via a mortgage, chances of losing the home also shoot up. The bankruptcy process becomes preferable as creditors hound one for payments.
4. Divorce
A divorce directly translates into attorney fees, alimony and child support payments, and division of assets. Add to that the mental strain that might affect one’s ability to work, and it’s not surprising that divorces lead to personal bankruptcy.
5. Disasters
Disasters like earthquakes or hurricanes, or fire or thefts – anything that is not covered by insurance and involves a significant loss of assets – can lead to financial ruin and force people to file bankruptcy.
6. Predatory lending
From mortgages that are far above the value of homes to spiking interest rates and minimum payments, many consumers have had to enter the bankruptcy process after they were careless about the loans they took.
7. Lawsuits
Litigation over credit cards or car accidents or something else can turn into huge damages claims over and above the legal fees that has to be borne. Bankruptcy can become a solution as it stops any lawsuits.
8. Student loan burden
In case one doesn’t land a good enough job after completing their studies with the help of student loans, the payments can negatively influence finances. Though student loans aren’t wiped out in a bankruptcy discharge, they can be restructured to become more manageable.
9. Small business failure
A small business is usually started by one’s own funds and is directly tied to personal finances. A failure not only means a loss of what was invested, but can also lead to creditors looking to collect from one’s personal property, leaving bankruptcy as the only option.
10. Speculative losses
Trading actively in stock, forex, commodity or other such markets exposes one’s funds to a number of risks. Sudden movements in these markets can turn into a jackpot or a catastrophe. If one does not keep control of their speculative activities, they may find themselves in the middle of the bankruptcy process.
