5 Top Reasons People Go Bankrupt
Bankruptcy filings continue to climb with more than 1.5 million people doing so every year. While it might not seem surprising that so many people are turning to bankruptcy given the current economy, the reasons for such filings are as varied as the people themselves. Here, in no certain order, are the top reasons people go bankrupt.
1. Job Loss or Reduced Income
Losing a job, even one that comes with some type of severance pay, can quickly eat up any savings. Once a job is lost, there are often additional expenses for items such as health insurance, that were previously built into the salary. Some companies, instead of downsizing by eliminating employees, are cutting back on hours, benefits or both. This change in income can be difficult to accommodate if long term expenses, such as mortgage payments, have been calculated on a certain income amount.
2. Medical Expenses
In spite of more people than ever before having access to health insurance, medical expenses are still one of the top reasons cited for filing bankruptcy. According to a study by Harvard University, 62 percent of filers state that their inability to pay their medical expenses led to catastrophic economic issues. Just because a person is lucky enough to have health insurance doesn’t mean that they cannot become overwhelmed by their healthcare costs. That same Harvard University study also noted that about 72 percent of bankruptcy filers had some type of health insurance.
3. Divorce
Divorce typically means significant changes in the lives of those involved. Not only do fees for lawyers add up quickly, there is nearly always a reduction in both assets and income for at least one of the parties. During the settlement phase of the divorce, one partner might also found themselves unexpectedly responsible for the entire amount of a bill that they co-signed with their former spouse.
4. Credit Card Debt
Much is made about the amount of credit card debt that Americans are responsible for these days. While it is easy to assume that this is the result of careless spending, in most cases the reasons go deeper than that. Many people find themselves turning to their credit cards to make ends meet after they experience the loss of a job, emergency expenses or catastrophic illness or disability.
5. Student Loans
Attending college can boost your earning potential over your lifetime. Paying for that education, though can make it difficult to get ahead. About one percent of all bankruptcies filed each year are due to overwhelming student loans.
If you find yourself in any of these aforementioned situations, contact Clark & Washington. Our team of experts is here to help you out of your financial trouble.