Personal bankruptcy statistics are alarming in America, despite the 11.8% decrease in the year ending on June 30th, 2020. When you face difficult times, filing for bankruptcy may be your only option for finding a lasting solution to your financial challenges.
Nothing is more empowering than having the ability to meet your entire financial obligations in good time. When you fail to meet these obligations, you may have to file for bankruptcy, which helps you eliminate a large portion of your debt.
Most people will file for bankruptcy to receive the much-needed relief from their debts and the insistent calls from their debtors. Also, the idea of starting again on a clean slate can be very enticing. The irony in filing for bankruptcy is that you will have to pay for it while you do not have the means to do so. There is no fixed time when you should file for bankruptcy except when you feel it’s the only option left.
This article explains in detail the common causes of bankruptcy.
Medical Expenses
Medical expenses are a leading cause of bankruptcy in most American homes. Most people find it difficult to pay high medical bills brought by some rare illness or severe injuries. Some medical bills escalate at a high rate despite someone having health insurance.
You will find that even health insurance does not completely insulate you against substantial medical bills. With the rising health insurance premiums, you may think that electing a higher deductible will keep your monthly expenditure low, but this simply makes you dig deeper into your pocket if you need significant medical assistance. This situation will lead you to incur substantial medical debts, and your only solution may lie in filing for bankruptcy.
Poor health or illness will lead to job loss, high deductibles, and time. It will consume any savings you may have, wipe out your college fund, and within no time, you will have nothing left under your name. When you have exhausted your savings, you will find that filing for bankruptcy is the only option left open for you and your loved ones.
Job Loss
Whether you lose your job due to termination, resignation, or being laid off, this income loss will harm your life. You may be among the lucky individuals who receive substantial severance pay, but even this can be exhausted quickly if you have considerable debts to offset.
Sometimes a job loss may lead to stress and even depression, where most people indulge and in the process misuse the little money they have. Treating depression and other stress-related illnesses is another huge financial burden on your shoulders. Suppose you face these psychological illnesses, it’s advisable to seek medical assistance as early as possible. Talk with a counselor about the challenges you are facing due to job loss, and they may help you come up with ideas to keep busy while earning some money as you continue with your job search.
Job loss could lead to substantial financial constraints where you may deplete your savings before securing another job. When you suffer through a job loss, you will still have to pay your loans and other financial obligations. With no guarantee of landing another job soon, it is prudent to file for bankruptcy.
Separation or Divorce
Separation or divorce can lead to the partners’ huge financial burden, starting from the legal fees they will incur as they engage divorce lawyers’ services to their combined loss of income that may accompany the proceedings. Sometimes, if you have co-signed on your partner’s loan, it will add to your financial burden as you are expected to clear a portion of their loan. After a divorce, some of your assets may be split, leading to loss of income.
After the dissolution of your marriage, you may suffer substantial financial strain as you face child support, alimony, and sometimes the cost of maintaining two households. If you have some back child and alimony to cover, you may undergo wage garnishments, and this may affect your ability to meet your other financial obligations. It is advisable to evaluate your financial position while undergoing a divorce or separation and take the necessary precautions. If the divorce leaves you in a situation where you can not manage your debts, then seek a bankruptcy attorney’s services and start the process of filing for bankruptcy.
Natural Calamities
Sometimes natural calamities like floods, tornadoes, and earthquakes that you have not insured your property against can lead to colossal property loss—ensuring that you take a separate coverage that will cover natural calamities like earthquakes when insuring your property would be of great help. If you do not protect your property against such disasters, you may end up losing your property, and it may take you long before you can replace the property.
Excessive Use of Credit Cards
Sometimes, you may be unable to control your credit card use, service your car loan, or any installment debt that you might have. These debts may soon pile up, making it difficult to pay back, and if you are not keen, you may end up filing a bankruptcy petition.
You can sometimes accumulate a considerable amount of debt on your credit card when you are going through hardship and cannot afford to pay for your necessities like foodstuff using your bank account’s money. This situation will force you to use the next available alternative, a credit card. Continuous use of a credit card will accumulate debt within no time, and you will be facing bankruptcy.
Unexpected Expenses
Unexpected expenses and emergencies like your car breaking down may quickly wipe your savings out. If you experience these unbudgeted expenses over a prolonged time, the financial drain may lead you to file for bankruptcy. it is always advisable to have a budget that you follow and also to have some emergency funds set aside for such a time when an unexpected expense occurs.
Overspending or Poor Budgeting
Overspending and uncontrolled spending may lead to a lot of debts. Whether you overspend due to poor budgeting or inflation, if you fail to pay close attention to what you spend, you will accumulate a huge amount of debt within no time.
You will need to have a budget and follow it to ensure that you live within your means, and this will help keep you debt-free or make it possible to have debts that do not overwhelm you. Though filing for bankruptcy may offer you the relief you crave from your debts, you will need to develop healthy spending habits since overcoming your debts is a habit that requires you to act.
Utility Expenses
The rising cost of utility bills is a massive concern for some homeowners. Having to pay a considerable amount of money on electricity, heating, and air conditioning can lead to debt accumulation as you try to balance them.
Taking Huge House Mortgages
Taking a colossal house mortgage may lead to bankruptcy, especially when you cannot make the payments. You should never take a house that is beyond your means to pay. If you can’t find an affordable place within your location, you should try to expand your radius to end up with a place within your means.
Lack of Emergency Fund
Lack of an emergency fund that you can use when you face unexpected expenses due to job loss or a medical emergency can lead to bankruptcy. It is always advisable to expect the unexpected by having an emergency fund that should cushion you if you face any financial strain. It is recommended that you have some savings tucked away somewhere, which you can use whenever an emergency arises. Some emergencies like structural damage to your house can set you back, leading to severe financial repercussions.
Low Income
Low income can lead you to accumulate a lot of debt to balance your living expenses with the little amount you are earning. It is advisable to try and live within your means to avoid accumulation of debt and upgrade your living status when you receive a better paying job.
You will find a situation where you will be using your credit card a lot or taking other forms of the loan without the means to pay it back.
Student Loans
You may not believe it, but student loans contribute to almost 1% of American bankruptcy cases. When you take a loan as a student, it’s with the belief that you will be employed immediately after completing your studies. Due to the market saturation, most graduates cannot land a job, yet they are expected to start paying off their student loans.
Home Foreclosure
When you take a mortgage for your home, you want to provide your family with a safe place where they can call home. If you are unable to pay the mortgage for any reason, you may find filing for bankruptcy as the only option where you will prevent the foreclosure of your home, leaving your loved ones out in the cold.
Pay Cuts
Pay cuts often happen when a company isn’t doing well, and it is forced to reduce its expenses by reducing its employees’ salaries. If the employee doesn’t have any other income source, the reduced salary may lead them to file for bankruptcy.
Helping Friends and Relatives
Though it’s hard to believe it, providing help to friends and relatives could lead you to bankruptcy. Recent studies show that over 28% of bankruptcies are filed by individuals who helped their family, and friends thereby accumulating huge debts that they couldn’t settle.
Loss of an Income Provider
When a family loses their sole provider either via an accident that leaves them unable to provide or if they pass away, the remaining spouse may file for bankruptcy.
High Interest on Loans
With the high interest, most lenders are charging on their loans, and most people are unable to pay the loans plus the interest, which may lead them to seek the services of a bankruptcy attorney.
Bad or Poor Investments
Investments are one way a person uses to improve their finances; you will need to invest in something viable. When you make a bad or poor investment, the results could be devastating, where you may lose all your investment and savings and eventually file for bankruptcy.
Your Residential Location
You are likely to file for bankruptcy if you reside in an expensive city compared to your counterpart living in a different part that is less expensive. This is because, in an expensive part, you will pay high rent and taxes compared to other less costly neighborhoods.
Your Age Also Matters
Recent studies show that personal bankruptcy has declined for people aged between 18-54 years but has been on the rise for people between 55 and 74. This means that if you are in the age where bankruptcy is prevalent, you should take the necessary caution when filing for any loan and take a keen interest in your finances.
If you are older, several contributing factors could lead to a bankruptcy situation like a decrease in your income, deteriorating health, co-signing your children’s loans, among others. It’s advisable to seek the help of a finance consultant who will advise you accordingly.
Lending or giving money
Lending or helping other people in need is a noble trait to have, but you should also consider your financial stability when doing so. You do not have to give to the extent where you are unable to meet your financial obligations.
High Cost of Living
With the current living expenses increasing daily, while the source of income remains constant and in some cases is reduced, most homeowners are struggling to meet the high cost. This situation will eventually lead to a lot of debt accumulation, paving the way for a bankruptcy petition.
Wage Garnishment
Wage garnishment happens when your creditors sue you and the court orders your employer to use a portion of your salary to pay off your creditors. A percentage of your salary will be used to pay your creditors off till your debt is fully settled. Wage garnishment makes it hard to pay off other debts, and sometimes your employer may decide to lay you off instead of dealing with the hustle involved in wage garnishment. Though the law prohibits employers from terminating your work due to wage garnishment, an employer can find another way to let you go citing other factors for terminating your services with them. There are some instances where wage garnishment happens without any order from the court, like paying student loans, child support, and income taxes.
Business Loss
Business loss can lead to personal bankruptcy for the owner, especially if it was a sole proprietorship. When your business incurs losses, you may not know where to turn to and instead use your savings to pay off your business loans and debts. If you try this and it doesn’t work, you will lose your business and your savings, which could pave the way for bankruptcy. If you are experiencing business hardship, consult with a financial expert who will guide you on how to overcome your situation without leading to bankruptcy.
Disability and other Debilitating Injury
Disability and other debilitating injuries are another cause for filing bankruptcy for most people. Even with health insurance, the cost of seeking medical assistance can be very high. Then afterward, you may lose your job due to the injury leading to loss of income. disability and other debilitating injuries may not only cause you to lose your source of income, but can also require some of your family members to stop working in order to take care of you on a full time basis.
All these factors will lead to debt accumulation and eventually, you may be forced to file a bankruptcy petition.
Gambling and Substance Use Addiction
Gambling and substance use addiction can wipe out your savings leading to financial strain. The problem with addiction is that even after you go through a successful bankruptcy petition, you can still accumulate huge debts afterward if you do not deal with your addiction’s root cause. Bankruptcy for substance use addicts and gamblers doesn’t offer a lasting solution; it acts as a bandage. If you are an addict, the first step will be to accept that you are an addict and seek professional help to overcome the addiction.
Contact San Diego Bankruptcy Attorney Near Me
When you think you have reached the end of your financial rope, do not hesitate to consult an experienced bankruptcy attorney. At San Diego Bankruptcy Attorney, we can file Chapter 7 or 13 for you as an individual or for your business. If you are considering filing for any of the above reasons, we will be with you throughout the entire process.
Despite the myth associated with bankruptcies, it is advisable to seek our assistance as we will help you make an informed decision regarding filing for bankruptcy, the entire process, and how to carry on post-bankruptcy. If you think you are headed for bankruptcy, contact us at 619-488-6168 for a complimentary, no-obligation, and in-person consultation with our attorneys.
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