As a result of today’s shaky economic climate, going bankrupt is no rare occurrence. Bankruptcy has been on the rise and shows no signs of slowing down. As many as 1.5 million people file for bankruptcy every year. Unfortunately, filing for bankruptcy can cause your entire world to fall apart.
However, for many people, it’s the only way out of the debt they find themselves under. So, what is it that makes people find themselves so desperate that they have to file for bankruptcy? Take a look at some of the most common reasons why people go bankrupt and what you can do to avoid them.
Unexpected Job Loss
As many as 60% of people who file for bankruptcy, claim it was a result of a sudden job loss. When an individual becomes accustomed to a certain salary, they may put themselves in debt, believing they can pay it off.
Unfortunately, if your salary suddenly takes a dive, there’s no way that you can pay off your mortgage, car payments, and any credit card bills. Unless you have a significant amount of money in savings, chances are that your only option is filing for bankruptcy.
Even with medical insurance, certain illnesses and injuries can leave a person financially crippled. Not only can hospital bills be extremely costly to pay off, even with insurance, your medical circumstances may leave you unable to work, and therefore unable to make money.
For this reason, financial experts recommend having at least three months of salary put aside in case you can’t work due to a medical emergency.
A lot of people see credit cards as free money in their pockets. However, the truth is that they are far from free. The more credit that you rack up the more that you’ll have to pay back with interest attached.
Some people find themselves in over their heads with credit card debt, and once it comes time to pay them off, their debt to income ratio is completely imbalanced. The result? Having to file for bankruptcy, and losing everything they have.
Believe it or not, divorce is a great business to be in. Divorce lawyer fees are astronomical in some cases, and leave spouses crippled with debt. Apart from legal fees, divorce and separation can also lead to one spouse having to pay the other alimony or child support.
It can also mean taking on extra debt that your partner accumulated. Apart from the emotional repercussions of divorce, the financial burden is undeniably equally as difficult, if not more.
People with fine taste and an inability to budget may find themselves living in the lap of luxury that they simply can’t afford. When they can no longer pay for their homes, they often file for bankruptcy in order to avoid foreclosure.