Factors that can Lead to Bankruptcy

Although every case is different, there are a set of circumstances and factors that can lead to bankruptcy for many people. Below, we’ve highlighted some of the most common. If you have any circumstances in your life that are causing financial difficulties and would like to discuss whether bankruptcy is the right choice for you, please do not hesitate to call our experienced bankruptcy attorney for free today.

Divorce

Financial problems are a major cause of divorce in the United States, so it makes sense that a lot of divorcing couples have debt to resolve. In addition, divorce is a costly process in itself and many people find that their financial situations change significantly from when they were married. The financial impact of divorce can extend quite a bit beyond the initial division of assets and lawyer’s fees between the couple. Debt often accumulates after the divorce, as ex-spouses find themselves running two households instead of one and thus are dealing with double living expenses. Many people end up using credit cards in the aftermath of divorce to pay the bills previously handled with two incomes.

Poor Use of Credit

Many people who file for bankruptcy have numerous credit cards. A very common assumption is that a bankrupt person misused credit because they were living well beyond their means. While this does occasionally happen, it is the exception, not the norm. What typically happens is that, for one reason or another, debtors rely on credit cards to make ends meet. They are usually paying for living expenses with credit because they run out of money at the end of the week or the month. What starts out as a short-term solution can lead to a massive accumulation of unsecured debt over an extended period of time.

In order to avoid amassing credit card debt, try these two things:

(1.) Create a budget by finding a way to monitor your income and expenses so that you aren’t spending more than you are making

(2.) Don’t use credit to pay for items that hold no long-term value and always pay your credit card balances in full. When you do borrow to purchase a big-ticket item, make your payments as high as you can and keep your amortization as short as possible. This will ensure that you pay off that debt sooner and keep your interest costs low.

Medical Expenses

A recent Harvard University study showed that medical expenses account for approximately 62% of personal bankruptcies in the United States.Additionally, the study showed that 72% of those who filed for bankruptcy due to medical expenses had some type of health insurance. While many might assume that only the uninsured would face financial hardship from medical expenses, the statistics indicate that even the insured are not immune from the financial catastrophes that can result from medical expenses.

Job Loss or Income Reduction

Contrary to popular belief, the average bankrupt person is actually employed—in fact, about nine out of 10 people who file for bankruptcy have jobs. While most bankrupt people were employed when they filed for bankruptcy, the underlying cause of their bankruptcy many people is job-related. At some point, they may have lost their job or experienced a drop in income due to economic conditions or illness. Many turned to credit cards to pay their bills that were not covered by unemployment or disability insurance. While their debt was affordable before, once they returned to work, the at-risk debtor found themselves with newly acquired debt that could no longer be serviced on their new income.You also don’t have to lose your job to become financially insolvent. Often, people who go bankrupt have experienced some form of income reduction, such as getting into a car accident or becoming ill and having to take time off of work.

Student Loans

As the cost of education in the United States continues to rise, many students take out student loans to cover the cost of their educations as a necessary evil. While many student loans can be paid back on an income-based system, the sheer amount of money many students owe can put a significant drain on their financial resources. The potential economic fallout from the mounting student debt crisis is likely to be so severe that many financial experts believe that it will rival or exceed the 2008 economic crisis.

Unexpected Expenses

Emergencies are always lurking around the corner. Your car could break down, a tree could fall on your house, or you may find yourself facing a legal judgment Any one of these events can drain your savings and make it more likely that you will need to file for bankruptcy. Loss of property due to theft or casualty, such as earthquakes, floods or tornadoes for which the owner is not insured can also force some into bankruptcy. Many homeowners are likely unaware that they must take out separate coverage for certain catastrophic events such as earthquakes. Those who do not have coverage for this type of peril can face the loss of not only their homes but most or all of their possessions as well. Not only must they then pay to replace these items, but they must also find immediate food and shelter in the meantime.

High-Risk Mortgages

The debt crisis and resulting recession that followed in the 2008 economic crisis were a painful reminder of what can happen when mortgage balances outweigh home values.Although we have largely emerged from that hole and lenders are much more careful these days, the temptation of historically low interest rates can be very alluring for many borrowers. Even when housing prices are on the rise, carrying a high-ratio mortgage can place a significant risk on your financial health. If you add a couple of credit cards and a card payment to your mortgage, the situation can become dire if you do not manage it carefully.

Contact an Arizona, Colorado, and Nevada Bankruptcy Attorney

If you are considering filing for bankruptcy, it is important that you speak to an experienced and knowledgeable bankruptcy attorney who understands the legal system and can help you avoid potential pitfalls. Contact the office of Want a Fresh Start onlineor call 866-780-4855 to schedule a free consultation today.