The Personal and External Reasons People File Bankruptcy

reasons people file bankruptcyLife can throw us curveballs that change our financial circumstances and sometimes we make decisions that are not always the best. There may come a time when those circumstances and decisions put us into a financial situation that we have a hard time getting out of. When that happens, you may need to consider bankruptcy.

Bankruptcy is a route that can allow you to get back on track if you are overwhelmed by debts that you cannot possibly pay off under your current circumstances. Unfortunately, many people put off filing for bankruptcy out of fear of looking like a failure to those closest to them.

Personal Things That That Happen

There are a number of factors that lead to people needing to file for bankruptcy. Today, we want to talk about some of those reasons. As we do, we want you to note that these reasons are typically out of a person’s control.

  1. Medical Emergencies: a Harvard study says that medical expenses are the cause of 62.1% of all bankruptcies in the United States. It is no secret that the cost of medical care is high, even for those with insurance. Most of the medical costs that caused bankruptcies were caused by hospitalizations.
  2. Reduced Income of Job Loss: if a company is downsizing for any reason, this can lead to them reducing income, eliminating bonuses, and even letting employees go. If this happens to you unexpectedly, the result could be getting stuck with debt you can no longer afford to pay off.
  3. Credit Cards: many people have credit cards for emergencies and often end up using them to cover the medical costs we discussed above. When this happens and a person cannot pay them off in timely manner, the debt can spiral out of control quickly.
  4. Divorces: there are many things that have to be settled in a divorce. Once all of the assets are split (including joint debt), a person could be facing major economic hardship. If you are required to pay alimony monthly, this could prevent you from paying regular bills or debt owed.
  5. Student Loans: collectively, people in the US have more than $1.5 trillion is outstanding debt. The average student for the most recent graduating class has $37,172 in student loan debt.

External Factors

We also want to discuss some factors that many people do not consider when it comes to bankruptcy filings. There are many external, macroeconomic factors that come into play.

  1. Recession: anyone who was working or looking for work in the late 2000s knows that an economic downturn can hurt everyone. Businesses and individuals suffered during the “Great Recession.” In the first year of the recession, personal bankruptcies rose 34% from the previous year.
  2. Tariffs: most people do not think about how government policies can affect them personally, especially if those policies deal with international trade. If tariffs are imposed on good coming into the United States, this can greatly affect companies here. For example, if a person works in the automobile industry and tariffs are imposed on steel imports, the entire industry will be affected. The price of steel will likely rise. To make up for this increase in costs, companies may reduce their workforce, lower salaries, or cut pensions. All of those results can affect a person’s personal finances.

What Are Your Options Now

We hope you understand that there are many factors that go into why a person ultimately files for bankruptcy. Contrary to popular belief, they are not usually due to a person’s irresponsible spending behavior.

Now is the time to secure a qualified and experienced attorney to help you move towards financial freedom again.

Click here for information on what happens after an automatic bankruptcy stay is ordered.