Five common reasons that Americans file for bankruptcy


One of John Lennon’s most famous lyrics insists that “Life is what happens to you while you’re busy making other plans.” The unexpected ensures that life remains interesting, engaging and challenging. But sometimes, life can become too challenging. Illness, injury, changes at work, the birth and death of loved ones and a host of other complex life events can take a toll on your finances.

If you are struggling mightily with your financial situation due to the unexpected nature of life, you are not alone. Millions of Americans opt to file for bankruptcy on an annual basis when the financial realities of life prove to be too challenging to navigate without support. Here are five of the most common reasons why your fellow Americans choose to file for bankruptcy with the aid of experienced bankruptcy attorneys.


Medical Costs

A recent Harvard study indicates that medical expenses are the greatest single cause of bankruptcy. Approximately 62 percent of personal bankruptcies are filed in-part due to medical expenses. The researchers have also concluded that 78 percent of filers have a health insurance policy. This conclusion debunks the idea that medical bills only affect the uninsured. Rare and serious injury or disease can result in substantial medical bills – bills that can wipe out a person’s savings, retirement, college funds, or home equity in a matter of weeks. Once these are depleted, bankruptcy may be the only remaining recourse.


Job Loss

The loss of income from a job can be devastating. Some workers are fortunate enough to receive severance pay, but most receive their walking papers with little or no warning. Losing insurance coverage can also rapidly sap already limited resources. Persons unable to find gainful employment for extended periods of time may not recover rapidly enough to keep creditors at bay.

Over-Extended Credit

Some people struggle to control spending for reasons that may be beyond their control. Credit card bills, installment debt, and loans can easily spiral, leaving the borrower unable to make even minimum payments. Without access to funds from family, friends or a debt-consolidation loan, bankruptcy may be all but inevitable. Statistics show that most debt-consolidation plans fail. Home-equity loans can remedy some unsecured debt, once it’s exhausted, borrowers may face foreclosure.


Divorce or Separation

Marital dissolutions create enormous financial strain on couples of all income levels. Legal fees, the division of marital assets, child support, alimony, and the ongoing expense of maintaining two separate households are often more than enough to force a person to file for bankruptcy. Spouses who fail to pay court-ordered support often leave the other party poverty-stricken.


Unexpected Expenses

Lost property due to theft or natural disasters for which the homeowner is uninsured can drive some into bankruptcy. Many homeowners are unaware that they need a separate policy for some events. Those without coverage can face the loss of their homes and all of their belongings as well. Not only will they have to pay for the replacement of these items, but also for alternative food and shelter. Worse, those whose wardrobes are destroyed in a natural disaster may be unable to dress appropriately for work, which can cost them their jobs. 

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