The short answer is: they can no longer afford to pay their bills. The more in-depth questions are: Why did that happen? What can you do to avoid the same fate?
The unfortunate circumstances of many bankruptcy filings are avoidable—and knowing the danger signs can help. That’s why our bankruptcy attorneys created this list of the top five reasons people file for or declare bankruptcy—and how to keep from becoming one of them.
Poor financial management is the #1 reason people file for bankruptcy.
Did you know that? Most people filing for bankruptcy say they could have avoided it if they had managed their money and financial situation better. A recent study found that over 62% of bankruptcies are due to unexpected medical expenses, leaving many families to choose between paying the bills or eating.
Unfortunately, many people don’t have the money to pay their medical expenses, and the only way they know how to solve that problem is by filing for bankruptcy.
Taking on too much debt to pay for education and child support.
The second most common reason for declaring bankruptcy is too much debt related to education expenses. If you’re trying to pay off your student debt or mortgage payments, don’t put yourself in a position where you cannot live within your means.
While you may think you need to take on excessive debt to make it through school, this mindset can be detrimental. Not only do you risk accruing high-interest debt and making it harder to repay your student loans, but you can also make yourself more susceptible to bankruptcy filing overall.
Making bad choices in credit card use
According to the National Foundation for Credit Counseling, about 60 percent of people who file bankruptcy do so because of money problems related to too much card debt. Credit cards can be convenient and useful, but they also can create serious money problems if you use them irresponsibly.
Loss of income or unexpected expenses, both of which can lead to an inability to pay your bills
According to major publications and the Federal Reserve, the most common reason people file for chapter 7 bankruptcy is that they lost their job or experienced another extreme financial hardship. If you cannot pay your bills, work with your creditors to reduce your debt or arrange a repayment plan.
On the other hand, if you cannot meet your financial obligations and have no way to pay your creditors, personal bankruptcy can be a constructive solution as long as it is properly managed.
Final Thoughts
There are a few different reasons why people might file for bankruptcy. Some people make poor choices regarding credit card debt, and they find themselves in over their heads. Filing for bankruptcy can give them a fresh start and help them get their financial life back on track.
Others may have experienced a major life event that has left them with overwhelming debt, such as medical emergencies, medical bills, or legal judgments. For these bankruptcy filers, it can provide some relief from their financial burdens.
Whatever the reason, if you are considering filing for bankruptcy, it is important to consult with a qualified bankruptcy attorney or bankruptcy lawyer who understands the bankruptcy process and bankruptcy laws very well.
They can review your situation and advise you on whether or not filing for bankruptcy is the right choice for you.