What Are the Most Common Financial Issues That Lead to Bankruptcy?

 Posted on September 22, 2022 in Financial Crisis

Every year, millions of Americans find themselves struggling to make ends meet. For many, this struggle eventually leads to a decision to file for bankruptcy. This decision is never an easy one, and bankruptcy is often the last resort after a person or family has tried everything else to get their finances under control. In many cases, people are hesitant to pursue bankruptcy because they believe that they will be seen as financially irresponsible. However, understanding the reasons that people most commonly file for bankruptcy can provide insight into the situations where debt relief may be needed.

The Most Common Reasons People File for Bankruptcy

While financial mismanagement is one reason why people may choose to file for bankruptcy, it is far from the most common issue that families in the United States experience. In actuality, the causes of financial problems that often lead to bankruptcy include:

• Medical bills - Even for those who have insurance, medical care can be incredibly expensive. A sudden illness or a serious injury can easily lead to thousands of dollars in medical bills. If extensive treatment is needed, such as major surgical procedures or ongoing treatment for conditions such as cancer, medical costs can add up to tens or hundreds of thousands of dollars. For families who are already struggling to make ends meet, these unexpected costs can be impossible to handle. For those who have a large amount of medical debt, bankruptcy might be the best option for getting out from under it.
• Job loss - A layoff or other loss of income can quickly put a family into financial jeopardy. If a family is not able to find another source of income, they may find themselves falling behind on rent or mortgage payments, credit card bills, utilities, and other ongoing payments. The loss of a job may also cause a family to lose health insurance coverage, which may lead to additional medical bills. For homeowners, a lack of income may lead to the threat of foreclosure, and failure to make loan payments may also put a person at risk of vehicle repossession, wage garnishment, and other consequences. In these situations, bankruptcy may be the best way to give a family a fresh financial start.
• Divorce - A divorce can be a very costly process, both emotionally and financially. In addition to the cost of hiring attorneys for both parties, there may also be the need to pay ongoing expenses for two separate households. Depending on the decisions made during the divorce process, a person may be required to make ongoing child support or alimony payments while also dividing their money and assets with their spouse. All of this can be a major financial strain, and following a divorce, bankruptcy may be necessary to ensure that a person can get their finances back on track.
• Business failure - Businesses fail every day. It is an unfortunate but true fact of life in the business world that some ventures just do not work out, no matter how well they are managed or how talented the team is running them. When a business fails, a business owner will often find themselves facing financial ruin as well, and they may need to seek personal bankruptcy protection to ensure that they will be able to maintain ongoing financial stability.
• Natural Disasters - Unexpected disasters such as floods, wildfires, earthquakes, tornadoes, or hurricanes can lead to devastating financial losses. Some people may lose their homes or their jobs as a result of a disaster, and they may find themselves unable to pay their bills. Even when insurance coverage is available, the devastation of a disaster may place a person in a difficult situation, and bankruptcy may be necessary to eliminate debts and provide a fresh start.

Contact Our New Braunfels Bankruptcy Lawyer

No one ever wants to have to file for bankruptcy, but may be the best option available for those who are facing overwhelming debt. If you are struggling with debt, the Law Offices of Chance M. McGhee can help you understand the steps you can take to get back on your feet financially. Contact our Kerrville bankruptcy attorney at 210-342-3400 to set up a free consultation and get the debt relief assistance you need.

Sources:

https://www.investopedia.com/financial-edge/0310/top-5-reasons-people-go-bankrupt.aspx

https://www.abi.org/feed-item/the-3-most-common-reasons-why-people-file-bankruptcy

https://www.cnbc.com/2019/02/11/this-is-the-real-reason-most-americans-file-for-bankruptcy.html