Law

7 Common Reasons to File for Bankruptcy

you wondered why people file for bankruptcy? While filing for bankruptcy isn’t something most people expect to do, it’s good to understand what situations may make it the right course of action. Whether it’s due to overwhelming financial burdens or money mismanagement, filing for bankruptcy can happen to even the most responsible people.

Keep reading to learn about 7 common reasons to file for bankruptcy. 

1. Losing a Job Can Lead to Bankruptcy

One of the leading reasons to file for bankruptcy is losing a job. If you’ve been able to sustain a certain lifestyle and suddenly your income disappears, the financial burden can be devastating. And even if you don’t lose your job, you may experience reduced hours or a pay cut — and that can wreak havoc on your finances, too.

You’ll have bills and mortgages to pay but no means of doing so, especially if you lack a rainy day fund. And if the job market isn’t hot or you have other complicating factors competing for your time, it could take a while before you find steady income.

2. Bankruptcy May Result from Unexpected Expenses 

Everyone encounters unexpected expenses at some point in their lives. Things like injuries, major repairs to cars and houses, and childcare costs are examples of expenses that even the best planners might not anticipate. But if those expenses come out of nowhere and pack a punch, the fallout can be financially devastating. 

Natural disasters, like hurricanes or tornados, can inflict damage to property that is difficult to cover. Or something like a fire might wipe out your home entirely. And even if you’ve been dutiful about stashing away money in an emergency fund, you still might not be able to cover the mounting costs.

3. Medical Costs are One of the Biggest Reasons to File for Bankruptcy

With health care costs exceeding $10,000 a year per person, it should come as no surprise that medical costs can be financially draining. Getting hit with a bill for an emergency room visit or overnight stay in the hospital can gouge your savings. Or you might need specialized treatment that requires significant travel and monetary investment.

And if you don’t have the means to cover the costs, or a good insurance plan that can help, you may be better off filing for bankruptcy. One of the benefits of filing for bankruptcy is that you’ll be able to get a fresh start.

4. Foreclosure Situations Can Make Filing the Best Choice

Knowing when to file for bankruptcy means understanding which situations make it a realistic option. Foreclosure is a situation where filing for bankruptcy provides a way out. Depending on the type of bankruptcy filing you pursue, you may be able to keep your house — but in other instances, you may have to part ways with it.

If you need help understanding if and when to file for bankruptcy, turn to bankruptcy lawyers for the expert opinion you need. You’ll be able to understand which type of bankruptcy filing is best to help you get back on your feet.

5. Bad Budgeting Can Lead to Bankruptcy 

Keeping a budget is not something everyone does, even though it’s a recommended way to keep tabs on expenses. Without a clear budget to manage expenses, it’s far too easy to lose track of spending and wind up in a bad situation. Monthly spending on things like dining out, attending shows, or taking lavish trips can divert money away from more pressing expenses.

It’s best to get help with plotting out a budget that can keep spending under control. But even the most well-intentioned people can find themselves in a situation of financial difficulty due to budget issues. In the event that bankruptcy is the only option, ask an expert how to file.

6. Watch Out for Credit Card Debt

Credit card debt is another problem that can escalate quickly. When you’re trying to cover costs like grocery bills and utilities, it’s tempting to rely on a credit card. But turning to a credit card means you may pay higher interest rates over time — and miss payments if the monthly bills are too high.

It might also be tempting to make the minimum payment each month. The problem with doing that is that when you only make the minimum payment on a monthly bill, your debt will increase quickly.

Some credit cards come with a pretty high interest rate. While having a 0% APR card may be helpful in the short-term, it’s still not the cure for mounting debt. Ultimately, it will be hard to chip away at debt if you’re not able to pay off the full amount each month.

7. Student Loan Burdens Can Be Problematic

Student loans are another cause of crushing debt that many Americans have to deal with. Shouldering student debt while unemployed or under-employed makes paying down the principal on a student loan almost impossible. And with each passing month, the interest amount continues growing.

For someone unable to to find a good job while in repayment for student loans, filing for bankruptcy provides a pathway out of debt. And if you’ve been dealt an unexpected loan burden because a cosigner passed away, you may need the help that only a bankruptcy filing can provide.

Know When to File For Bankruptcy

There are many reasons to file for bankruptcy, and there’s no reason to feel shame for doing so. You may have an easier time getting back on your feet in the long run if you can wipe away debt. Understand what options you have, and don’t hesitate to ask for expert guidance.

To find more tips on anything from business to tech, check back for new and informative articles!

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