People often think that bankruptcy only occurs when people are irresponsible. It is quite common for people to associate bankruptcy filings with gambling or compulsive shopping habits. However, most bankruptcy filers end up struggling financially through no fault of their own.
Medical debt is one of the top causes of bankruptcy. Many other people file for bankruptcy because they lose a job. When companies lay off workers en masse or terminate an individual, the people who lose their jobs often experience financial hardship. For some people, that hardship will lead to bankruptcy eventually if they can’t find a new job quickly.
A loss of income may prove devastating
When someone loses their job, they lose the income that they depend on for everything from mortgage and rent payments to credit card payments. The average wage earner likely does not have enough in their personal savings account to cover more than a month or two worth of expenses.
According to data collected by the Federal Reserve in 2019, the average American household has $41,600 in savings. An average is not particularly useful in this case because of how extremely wealthy outliers skew the data. The median savings account balance, a figure that is a more realistic depiction of the typical household, is just $5,300.
People without income must begin prioritizing what bills they pay. They may focus on a mortgage or on rent so that they maintain their housing, but they could then end up facing aggressive collection efforts initiated by a credit card company. A creditor lawsuit can lead to wage garnishment and other financial complications that will only worsen someone’s current struggles.
Those who lose their only source of income, particularly after a layoff that may mean there is a glut of skilled workers looking for the same type of job as they are, may have a hard time bouncing back financially. When creditors decide to file lawsuits or when assets like homes are at risk due to financial struggles, a successful bankruptcy can discharge eligible debts, often including credit card balances and medical bills. The purpose of bankruptcy is to help people regain control over their personal finances.
Ultimately, acknowledging that circumstances outside of someone’s control can lead to bankruptcy may take some of the sting out of needing to file.