Most filings for bankruptcy are due to financial hardship, like unexpected major expenses, not because of unchecked spending.
Here are the four most common reasons why people file for bankruptcy.
Medical debt
Medical expenses can quickly add up and overwhelm a household’s finances, especially when the event is unexpected. Additionally, medical expenses can often exceed what medical insurance covers, leaving people in debt. Fortunately, bankruptcy can be an effective way to address medical debt.
Divorce
Divorce can lead to financial difficulties, especially if money problems were present before the marriage ended. It also can be challenging for people to maintain the same level of lifestyle after separating since the income supporting one household may now have to support two. Also, alimony and child support obligations can add additional financial strain that can lead to bankruptcy.
Job loss
Most households have a set budget based on their income. Unfortunately, when a person loses their job, it can be challenging to keep up with expenses. For instance, the loss of a steady income can make it hard to pay your mortgage, utilities, car payments, or meet your daily living requirements. Additionally, the job loss may cause the household to lose their health insurance, leading to additional financial strain if a medical event occurs.
Credit card debt
Carrying a large amount of consumer debt on credit cards can frequently lead to bankruptcy. Credit card interest adds up quickly. Plus, this leaves the person or household vulnerable to overwhelming financial obligations if an unexpected expense occurs in addition to the debt already owed.