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4 of the most common reasons people file for bankruptcy

On Behalf of | May 11, 2023 | Bankruptcy

Bankruptcy allows those who are struggling with insurmountable personal debt to wipe their slate clean (or, at least, cleaner).

While some people are judgmental about bankruptcy, the truth is that even those who are very responsible and successful professionals might only be a few months away from financial hardship that requires meaningful relief. The top causes of bankruptcy have less to do with personal responsibility and more to do with the unpredictable nature of life. These are some of the leading causes of bankruptcy in the United States.

Medical debt

Maybe someone without health insurance has a stroke, or perhaps someone requires a transplant or dialysis due to kidney failure. There are countless reasons why people may have medical debt and no feasible way of repaying it. Hospitals and other medical collectors can go after someone’s home and other resources, so those who have completed treatment may now face collection activity related to their medical bills may consider bankruptcy to protect themselves and move on with their lives.

A sudden loss of income

Many people do not have enough savings to cover all of their household expenses if their income ends abruptly or diminishes substantially. An employer going out of business or the loss of a job after a medical issue might lead to significant financial hardship, especially if the person who lost their job previously enjoyed a higher standard of living.

An unaffordable mortgage

Variable interest rates and changing household circumstances and make what once seem like a reasonable mortgage a burden for a household. Those facing foreclosure or struggling to make their monthly mortgage payments may end up falling behind on numerous other responsibilities and facing not just foreclosure but also creditor lawsuits that could lead to the garnishment of their wages.

Helping others out financially

Even those who have no health concerns and who generally live within their own means could end up financially overextended if they help others. Loaning money to friends and family members is a top reason for people to end up struggling financially when they don’t receive repayment for their loan. In other words, someone’s well-intentioned attempt to help keep a loved one from bankruptcy might actually push them into filing sometime later.

Oftentimes, people struggling with financial issues use credit cards or personal loans as a short-term solution for an unbalanced budget, a practice which only ends up worsening their financial circumstances. Filing for personal bankruptcy is a means of eliminating debt and halting collection activity. When successful, a personal bankruptcy filing could help someone begin the process of creating a far brighter financial future.

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The Law Office of Kim Covington, is a woman owned debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 24 years.