Most Common Reasons People File for Bankruptcy
A common misperception is that people who file for bankruptcy do so because they have “blown” money for years and their spendthrift ways have finally caught up with them. Think ritzy trips to Vegas, gambling addictions, and expensive vehicles.
However, the reality is far different. The Motley Fool published an excellent article recently reminding us that people ultimately head to bankruptcy court for much more mundane reasons—usually, because a crisis beyond their control has tipped them over the edge.
Medical Bills Are a Leading Cause of Bankruptcy
According to academic researchers, around two-thirds of people who file for bankruptcy cite medical issues. Medical issues can not only result in expensive bills, but they can also keep people out of work, thereby depressing a person’s income. As a result, sick people have less ability to stay current on their debt.
Of course, many people have multiple reasons for filing bankruptcy protection. Living beyond one’s means is cited by 44%, roughly equal to the number of people who identified an unaffordable mortgage. The housing market continues to be up-and-down, especially in South Florida, and many people who bought too much house probably never expected that they would be underwater on their mortgages.
Other Prime Causes of Bankruptcy
Researchers have also identified the following as key drivers of bankruptcy:
- Giving money to friends or family (28.4%)
- Student loans (25.4%)
- Divorce or separation (24.4%)
Researchers have pointed out that these causes are roughly consistent with what other surveys have found over the past few years.
Of course, it is easy to tell people not to give money to friends or not to take out student loans. But earning an education has always been a ticket to the middle class. Unfortunately, the exploding cost of education causes many students to take on unsustainable debt loads, especially when new jobs pay so little. And isn’t it a good thing that people are trying to help family members who have experienced financial difficulty?
Get Your Finances in Order
If you realize you can’t afford your monthly expenses, you need to take steps to keep the problem from snowballing. In some cases, you can juggle your budget and free up some money to pay off your debts. Over time, you should slowly whittle away at the debt so you can get some breathing room.
In other cases, you might be able to get a part-time job to help pay your bills and, hopefully, get debts paid off.
In other situations, filing for bankruptcy might be the best choice for you. Instead of paying interest for years on debts you cannot afford, you could get back on firmer financial ground by wiping out qualifying debts in bankruptcy. Even if you have some debts which can’t be discharged (like a mortgage), wiping out credit card or medical debt could free up more money to go to these expenses.
Contact Nowack & Olson today. Our Plantation Chapter 7 bankruptcy attorneys have worked with countless debtors in South Florida and are prepared to help you in any way we can. To schedule a free consultation, please call 888-813-4737. You can meet with us for a free, confidential case evaluation.