Many people assume that those who file bankruptcy are financially irresponsible or simply live beyond their means. While this is sometimes the case, more often than not, people must file for bankruptcy due to something completely unforeseen or outside of their control. The reality is that bankruptcy is meant to be a fresh start for those facing insurmountable financial troubles. Here are four of the most common causes of bankruptcy in the U.S. today:
1. Medical expenses
A serious or rare medical diagnosis can easily result in hundreds of thousands of dollars in medical bills – which can quickly wipe out any savings or retirement accounts you once had. According to the American Journal of Public Health, 66.5% of U.S. bankruptcies in 2019 were due to medical issues such as being unable to pay high medical bills or losing time at work. Even with health insurance, the cost of high deductibles, copays and job loss can add up rapidly.
2. Losing a job
In a country where three out of every 10 Americans don’t have emergency savings for a financial crisis, losing a job can be devastating. If a person is unable to find similar employment in time may not be able to keep up with their monthly payments. The loss of health insurance and the cost of COBRA insurance also takes a significant chunk of an unemployed person’s funds.
3. Divorce or separation
Divorce and separation can put enormous financial strains on both partners. There is a division of marital assets, legal fees, child support and alimony can all set back a person financially. In many cases, the legal costs alone are enough to force a person to file for bankruptcy. Wage garnishments to cover overdue child support or alimony payments can make it difficult for them to cover their necessary expenses.
4. Poor or excess credit
If people are unable to control their spending, they may find they have bitten off more than they can chew financially. Credit card bills, mortgages, car loans and other loan payments can soon get out of hand until the borrower can no longer make even the minimum payments on each debt.