Unlike celebs who file for bankruptcy because they’re living and spending beyond their means, involved in high profile court cases or subjected to bad financial or investment advice, many people file for device for far more mundane reasons.
Here are the top 10 reasons people file for bankruptcy we see on daily basis.
1. Medical bills
Just because you have medical insurance doesn’t mean that you’re immune from large bills, or regular expenses such as medication, physiotherapy sessions or even trips to a hospital several hours away.
Some people will find that their insurance will no longer cover them if their condition worsens, which means that they will have to pay for their own treatment.
Perhaps you can no longer work due to your condition, or have to go back to work before you’re ready in order to pay the bills and put food on the table.
Unemployment is another leading reason people file for bankruptcy.
If you’re a wage down in your household, then you’ll notice the difference in income immediately.
Whilst you might not be too disappointed about not being able to go on holiday, or not being able to afford a new car or other luxuries, you will be worried about using your savings or a credit card for everyday necessities like rent or mortgage payments, food and utility bills.
You’ll soon be watching every cent you spend.
3. Reduced hours
Some people such as retail workers, or factory workers, rely on overtime to make up any shortfalls in income.
Perhaps you’re on a low wage, but work long hours to make sure that you bring home enough money to pay your bills and keep a roof over your head.
Your hours may be cut or there may be no more overtime available because your factory didn’t get the contract they were expecting, or there is a drop in demand for your products. You’ll soon be worrying about how you’re going to pay for things.
Going through a divorce is a very difficult time for all concerned.
As well as having legal fees to pay, you may also be losing a wage in your household. This is likely to mean that you’ve got to manage with far less money than you’re used to, and perhaps more outgoings such as childcare costs or running a car, as well as the normal household bills.
5. Unexpected bills
Unexpected bills can come at any time, and in many forms.
You might suddenly need to pay for home or car repairs, book a trip to see an ill relative, or need to pay for medical treatments as a result of an accident.
Having to find a few hundred dollars on something you hadn’t budgeted for, could mean that you might not be able to pay your other bills on time, leaving you in debt.
6. Student loans
Student loans are not really a leading cause of bankruptcy, however can play a part in people of all ages struggling with repayments.
If you’ve graduated, and can’t get a well paid job, then you’ll be worrying about paying back your loans as well as your other bills.
If you’ve got student loans to pay back, and you lose your job, then you’ll be extremely keen to find a new job to avoid slipping further behind with payments.
In addition, as a parent or grandparent you might suddenly find yourself responsible for paying back a PLUS student loan.
If the primary borrower of a student loan dies, then the cosigner is liable for the debt. In many cases, the private loan company will demand the balance of the loan immediately.
This can affect parents or partners, and mean that through no fault of your own you suddenly owe thousands of dollars and can’t afford to pay it back, and may need to file for bankruptcy.
7. Utility payments
Maybe you can’t afford your afford heating or lighting payments, because you need to pay for gas to go to work, rent, childcare and food. You’ll need to prioritize which ones you pay.
Whilst it may be tempting not to pay your heating and electricity bills, because you think paying your rent or getting to work is more important to you, you may soon find yourself in debt that you can’t afford to get out of.
Fortunately, the Minnesota Cold Weather Rule might apply to you, in which case your utility company won’t shut off your heat. There are certain conditions that must be met, but at least you won’t be without heat.
If you’re struggling to make your mortgage payments then you might be tempted to just stop payment them, and concentrate on paying your other bills and expenses.
Whilst you might be able to work something out with the bank for the short term, foreclosure is a bad idea as you will need to move out and find somewhere else to live when your lender repossesses your home.
If you home is worth less than the total you owe on it, you could also be liable for the difference under a deficiency judgement. This would mean that you would lose your home, and owe an additional debt too.
Perhaps surprisingly, overspending is not one of the leading causes of bankruptcy. People rarely file for bankruptcy because they’re living beyond their means.
It’s not often we speak to clients that deliberately spend more than they can afford to, or miss payments on their car or home because they’re buying fancy cars, designer clothes or booking overseas holidays.
10. Credit debt
Again, credit debt such as high balances on credit cards, missed hire purchase payments, falling behind on car finance, inability to pay back loans are not common reasons for bankruptcy.
Many people who are struggling financially, soon find themselves relying on their credit cards for their groceries, or to pay bills. Payments need to be made on these cards, which obviously increase month and month as more payments are made on the cards.
For people who are overstretched, an increase in using their credit cards, an interest rate rise, , losing their job, a medical condition or unexpected bills, can mean that their best option is to file for bankruptcy.
As you can see, it doesn’t take much to push people to file for bankruptcy, and careless overspending or overstretching the budget is rarely to blame.
Because not everyone has adequate savings to deal with a sudden expense or permanent change in circumstances, it’s easy to go from coping well, to struggling with debt.
If you’re not sleeping well because you’re worrying about paying your bills, or you need bankruptcy advice, or want to learn how Chapter 7 Bankruptcy or Chapter 13 Bankruptcy could help you, then why not fill out our free Bankruptcy Evaluation Form or Contact Us at 612.824.4357 today and tell us how we can help you?