The Most Common Reasons for Filing Bankruptcy Aren’t What You Think
Many people believe that bankruptcy is only for those who are financially irresponsible. Bankruptcy is wrongfully portrayed by the media as being a get-out-of-jail free card for those who don’t want to work. In truth, bad financial habits are not the most common or even the second-most common reason for filing bankruptcy in the United States.
Throughout the United States, medical debt is the most frequent reason why individuals and families choose to file for bankruptcy. Studies vary but estimate that between 40% and 62% of all personal bankruptcy cases are filed because of medical debt that has swelled to insurmountable levels. Even more surprising is that the large majority of those who filed due to high medical debt actually had health insurance. The effects of the Affordable Care Act (Obamacare) on Illinois bankruptcy filings are yet to be seen.
The second largest cause of bankruptcy filings is job loss. Reduced income is one of the major reasons why Americans file Chapter 7 and Chapter 13 bankruptcy. Simply put, when income drops and bills stay the same, there is going to be a problem. Unless someone has enough money in savings or other assets to cover the difference, they will eventually fall behind.
Few people buy a new car when they are expecting to be laid off from work. People tend to make choices about housing, transportation and other expenses based on the job they have now and the career advances they expect to make in the future. When those expectations turn out to be wrong, hard workers and responsible homeowners can find themselves in need of the refuge that bankruptcy provides.
While poor spending habits and uncontrolled spending are cited as reasons for bankruptcy somewhat frequently, there is another cause almost as common. Most people don’t have a financial plan in place to prepare for divorce. When a couple divorces, they no longer pool their resources and face increased costs for housing, food and other essentials. This is especially true when children are involved and each parent wants a living space that can accommodate their kids. Child support payments, alimony and legal bills also drive many recently divorced people to file for divorce.
Any time bills go up or income decreases, it can be hard to stay afloat. Student loans, sudden expenses and reduced hours at work are all common reasons for people to fall behind. No matter how you got into your current financial situation, you need an attorney who can help. For further guidance, consult a skilled Chicago bankruptcy lawyer with DebtStoppers. Call us at 312-913-0630 or contact us online to schedule a free consultation.