Traditionally, when many people used to hear about people declaring bankruptcy, they assumed that filers couldn’t manage their money. Until the Great Recession, most people failed to consider that many people can find themselves in an overwhelming financial situation at any time. After 2008, that stigma shrank considerably for obvious reasons.
Nowadays, it is increasingly common knowledge that the following are some of the most frequent reasons that the average American declares bankruptcy.
Medical expenses
The leading cause of bankruptcy is medical expenses. Even with health insurance, high deductibles and co-pays, out-of-pocket costs can quickly escalate. A serious injury or illness can lead to hundreds of thousands of dollars in medical bills, suddenly pushing people into insurmountable debt.
Job loss
Many Americans are one or a few paychecks away from poverty. The loss of income from sudden unemployment can cause financial havoc. Without sufficient savings, individuals may struggle to cover basic living expenses.
Divorce or separation
The breakdown of a marriage often leads to financial strain. Legal fees, alimony, child support and the division of marital assets can be economically devastating. Furthermore, going from a double income to a single income makes debt management even more challenging.
Unexpected expenses
Significant home or car repairs can plunge people into substantial debt. These costs can be difficult to manage without an emergency fund or sufficient insurance coverage.
Student loans
Even though student loans can’t be discharged in bankruptcy, they can contribute to the financial strain that leads someone to file for bankruptcy. With rising tuition costs, many graduates find themselves paying for their education decades after they have received their diploma.
Bankruptcy is a decision not to be taken lightly. However, many people find themselves in a situation where it is their only option for a fresh financial start. There is absolutely no shame in that, as a need to file for bankruptcy is rarely an individual’s fault.