What are the primary reasons individuals file for bankruptcy?
Bankruptcy is becoming increasingly common. United States bankruptcy court statistics show that more than 1.5 million people file for bankruptcy ever year and nearly 97 percent of bankruptcy filings are made by individuals, not businesses. There are many reasons individuals give for filing for bankruptcy -- some of them unavoidable, some of them self-inflicted.
As you read through them, you'll recognize that some of the reasons are tied to economic trends. During the Great Recession, for example, many people lost their jobs and many had their wages reduced through no fault of their own. You should also observe how interwoven the reasons are with one another. For example, unexpected medical or home repair expenses may result in people running up their credit card debt.
If you find yourself faced with overwhelming debt, whatever the reason, bankruptcy may offer you salvation. Never try to navigate the process alone, however. It is essential that you work closely with a highly competent bankruptcy attorney who knows the procedural ins and outs and can guide you to the best possible option in your present situation.
Most Common Reasons Given for Filing for Bankruptcy
- Medical Expenses
A research study by Harvard University reported that about 62 percent of personal bankruptcies in the U.S. are attributable to medical expenses. Even more shocking, 72 percent of individuals filing bankruptcy due to medical expenses had some type of health insurance.
- Reduced Income
As businesses try to cut expenses to help their bottom lines, many employees have suffered pay cuts and reductions in their bonuses. Moreover, many people who lost their jobs during the Great Recession have gone back to work at lower-paying jobs.
- Unemployment
Even if individuals who have lost their jobs eventually get rehired, periods of unemployment are difficult to manage. Savings and assets get depleted; houses may be refinanced or go into foreclosure; COBRA insurance brings added household expense.
- Excessive Credit Card Debt
While running up excessive credit card debt is typically viewed as overindulgence and purchasing frivolous items, this is by no means always the case. Poor budgeting can certainly contribute to such debt, but it is also true that when incomes plummet, families use credit cards for necessities like clothing, transportation, home repairs or even food.
- Divorce
Divorce is usually an expensive undertaking. One or both partners may lose income or assets, have to make more costly living arrangements or arrange for more childcare, or be forced to assume a portion of a cosigned debt.
- Student Loans
According to statistics, student loans account for at least 1 percent of all U.S. bankruptcies (about 15, 000 bankruptcies annually.
- Rising Costs
Even as many people's incomes have decreased, costs of food, transportation and utilities have increased. Rising costs can have a weighty effect on family finances.
- Unexpected Emergencies
Medical emergencies are by no means the only calamities that knock finances off track. Unexpected costs for major car repairs or catastrophic storm damage to the home can swallow up savings and leave individuals heavily in debt.
- Foreclosure
Losing one's home is the American Nightmare. People will do almost anything to avoid going into foreclosure. As a matter of fact, more than 1 percent of Americans file for bankruptcy in order to avoid losing their homes.
If you are considering filing for bankruptcy for any reason, you should get in touch with attorneys experienced and skilled in the field who can guide you to the procedure that will be most helpful and least damaging to your assets and credit.