Top 5 Reasons To File Bankruptcy

While filing bankruptcy is a very individual and personal decision, there are some common reasons why people find themselves faced with that decision. Here are the five life changing events (in ascending order) that most often lead to personal bankruptcy. >


5. Unexpected Expenses. Most unexpected expenses come from a loss of property due to theft or natural disasters. Here we could be dealing with such things as floods, earthquakes, tornadoes, and other natural tragedies. Most people have some type of insurance coverage over their property, but not enough or at least not the right kind. Many homeowners are likely unaware that they must take out separate coverage for certain events such as earthquakes. Homeowners who do not have coverage specific to the event then they do not only face losing their homes, but most or all of their possessions as well.

After such occurrences there is not only the financial stress of replacing the items that were lost, but there is an immediate necessity to find food and shelter. This process is often what drains savings accounts, retirement funds, and causes families to resort to using credit that they can't pay back. Such event may also result in loss of employment which can cause a domino effect leading to bankruptcy.

4. Dissolution of Marriage. Marital dissolutions create tremendous financial strain on both partners in several ways. The legal expenses alone may drive some to file bankruptcy. Divorce is an expensive process. In some divorces attorney fees can be astronomical.

After the cost of legal expenses is addressed the parting couples must look closely at their current debt. Many marital debts were entered into with two incomes as a foundation. When one of these incomes is removed, the former obligations can no longer be met. The division of marital assets and the cost of keeping up two separate households create a major financial burden.

The legal costs and prior debts alone are enough to force some to file. Often if the two previously discussed issues don't drive someone to bankruptcy then wage garnishments to cover back child support or alimony can strip others of the ability to pay the rest of their bills. Spouses who fail to pay the support dictated in the agreement often leave the other completely destitute.

3. Excess use of Credit. Some people simply can't control their spending. Credit card bills, installment debt, car and other loan payments can eventually spiral out of control, until finally the borrower is unable to make even the minimum payment on each type of debt. The average American household with credit card debt has $15,788 over their heads according to CreditCards.com.

Debt consolidation is an option. However, statistics indicate that most debt-consolidation plans fail for various reasons, and usually only delay filing for most participants. Home-equity loans can be a remedy for unsecured debt in some cases, but irresponsible borrowers can face foreclosure on their homes if they are unable to make this payment as well.

Often, by the time we see the crisis of our situation, it is too late to dig our way out of the hole. If the borrower cannot access funds from friends or family or otherwise obtain a debt-consolidation loan, then the late fees, high interest, constant phone calls, judgments, and garnishments send them running to the bankruptcy court.

2. Loss of Income. Loss of income is caused by layoffs, resignation, a cut back on number of hours, or termination. When a family looses income their living expenses do not typically decrease. This generally results in the family's debt increasing, or becoming unmanageable. Not having an emergency fund to draw from only worsens this situation, and using credit cards to pay bills can be disastrous.

Add to this factor that with today's poor job market, when a subsequent job is found, it does not pay as much as the previous job did. The loss of insurance coverage and the cost of private insurance also drain the job seeker's already limited resources. Those who are unable to find similar gainful employment for an extended period of time may not be able to recover from the lack of income in time.

1. Medical Expenses. Statistically medical bills are the leading cause of bankruptcy in America. Harvard conducted a recent study that indicated 62% of personal bankruptcies filed in America are due to medical bills. Further studies show that 78% of those filing for medical reasons had some form of health insurance. Not only people without health insurance are affected by medical bills. The good news is that bankruptcy can relieve the burden of medical bills.

Being diagnosed with a serious medical condition makes you up to 50% more likely to file bankruptcy. Serious medical conditions can easily result in hundreds of thousands of dollars in medical bills. These bills often wipe out savings and retirement accounts, college education funds and home equity. Regardless of whether the patient or his or her family was able to apply health coverage to a portion of the bill or not bankruptcy may be the only shelter left.

In Obama's opening remarks of his health care agenda he stated, -The cost of health care now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes.- A serious medical condition usually results in a -domino effect- of lost wages, increased credit usage, job loss, and increased debt. These elements combined often lead to bankruptcy. If you find yourself facing any of these financial burdens or others and are considering filing bankruptcy, be sure to contact a somekeyword to determine the best course of action.