Although the number of personal bankruptcy filings in the U.S. has declined, many individuals continue to face insurmountable debt. Let’s take a look at some of the reasons that lead people to file for bankruptcy.
A number studies demonstrate that medical expenses account for more than 60 percent of personal bankruptcies. Catastrophic illnesses and injuries often result in hundreds of thousands of dollars in medical bills that can easily deplete savings and other sources of funds. Once these funds have been exhausted, personal bankruptcy may be the only alternative.
Losing a job can have devastating consequences, whether due to a layoff, firing or resignation. While some individuals may receive severance pay or have an emergency fund to draw from, the loss of income can easily deplete one’s savings. In addition, many individuals start to use credit cards to pay bills and also incur additional expenses such as COBRA insurance. Those who are out of work for an extended period of time are unable to pay creditors, and ultimately face collection activities and lawsuits.
Although some individuals use credit cards irresponsibly, debts can spiral out of control due to unexpected circumstances such as illness, disability, or job loss. When consumers cannot make the minimum payment and are unable to borrow money from friends or family, bankruptcy may be inevitable. While debt-consolidations may be an option for some people, most plans only delay filings in the long run.
Divorce can lead to financial burdens for both partners for a variety of reasons, not the least of which is legal fees. Obviously, dissolving a marriage can also lead to a significant loss of income and assets for either partner, depending on the division of marital property, and child and spousal support determinations. Moreover, both partners will be faced with the cost of maintaining two separate households after the divorce.
Without an emergency fund, unexpected expenses such as a costly car repair or property damage from a catastrophic storm can easily drain a family’s savings. While homeowner’s insurance will cover some losses, many individuals do not receive the full value of their claims. They are also faced with expenses of finding temporary shelter and may also incur additional debt to make up any shortfalls.
Regardless of the circumstances, filing for bankruptcy can enable many individuals to eliminate or reorganize their debts and make a fresh start. However, this is a serious consideration that requires the advice and counsel of an experienced bankruptcy attorney.