Top Reasons People File for Bankruptcy

Bankruptcy is often seen as a taboo topic that shouldn’t be discussed, which makes it shrouded in mystery. This leads to rumors, false narratives, and misinformation about bankruptcy and those who file for it. While our society tends to shame or look down on those who file for bankruptcy, most have legitimate reasons beyond their control, which makes bankruptcy the most suitable option. Below, we shed light on the reasons people file for bankruptcy and whether it’s a viable solution to help you out of a financial crisis.

Job Loss

Losing a job is one of the most common reasons to file for bankruptcy. One study found that sudden income loss was a contributing factor in 78% of bankruptcy filings. When you’re suddenly let go from your job, it’s normal to maintain the same lifestyle you had while you look for new work. However, if your job search takes longer than expected, your daily bills and expenses can become more than you can bear. It only takes a few months of unpaid bills and credit card statements to find yourself in a position where you can’t recover. When this happens, bankruptcy may be a feasible solution.

Medical Expenses

An unexpected, serious medical diagnosis can become extremely expensive, even if you have health insurance. An American Journal of Public Health study revealed that medical debt is the number one reason people file for bankruptcy. Over 40% of Americans carry medical debt, and nearly a quarter of them considered filing bankruptcy because of it. It’s estimated that over 60% of bankruptcies involve medical debt. If you are in this situation, you have little control over how these significant medical costs impact the rest of your life.

Unaffordable Homes

Mortgages account for one of the highest monthly expenses for most families, surpassing credit card bills, car loans, and student debt. Falling behind on mortgage payments is easy, especially if you just suffered a job loss or were diagnosed with a serious medical condition. It’s estimated that 45% of those filing for bankruptcy cited an unsustainable mortgage or foreclosure.

Overspending

People often make assumptions about those filing for bankruptcy, thinking they live beyond their means with lavish lifestyles they can’t afford. While consumer debt is one of the primary reasons people file for bankruptcy, it’s often not due to frivolous spending. Many who have significant medical bills or experience a sudden decrease in income choose to put everyday expenses on credit cards, which can max out quickly and gain a ton of interest if you only make minimum payments.

Divorce

Divorce affects every aspect of your life, where you experience significant changes to your lifestyle, home, possessions, and finances. Even if your ex pays spousal or child support, maintaining a similar lifestyle after the divorce can be challenging. When your financial situation seems overwhelming, you may need to turn to bankruptcy as a way out.

Student Loans

Significant student loan debt plays a role in bankruptcy filings, but it’s usually not the only reason. New federal legislation from the Biden administration has made it easier for student loans to be discharged when filing for bankruptcy, which may increase the likelihood of people filing for bankruptcy due to student loan debt.

Cost of Living

Inflation has skyrocketed over the past few years, increasing the costs of many everyday goods and services, from groceries to construction materials. In addition, wages haven’t kept pace with inflation. This can make many families unable to keep up with the rising costs of daily expenses they could once afford. When this happens, bankruptcy may offer the fresh start your family needs.

Badgley Law Group: Helping You Navigate Bankruptcy

There are many reasons people file for bankruptcy, and they’re often not what society has led you to believe. Sometimes, bankruptcy may be the best option to help you get back on your feet. Our team at Badgley Law Group can help you determine if bankruptcy is the best course of action for your financial circumstances. Call us at 407-781-0420 for a free consultation to discuss your situation.