Filing for bankruptcy is, unfortunately, becoming all too common for Americans today. One common misconception is that anyone who files for bankruptcy is simply unable to manage their money, but here are a few other reasons (many of them more prevalent than bad budgeting) that bankruptcy lawyers work with so many people each year:
- Unpaid medical bills: This is the most common reason for personal bankruptcy petitions (which also shows why it’s so important to work with a personal injury lawyer if you’ve been the victim of an accident). Around 62% of all bankruptcy cases, according to the American Journal of Medicine, are a result of unpaid medical expenses or debt incurred from medical bills.
- Loss or reduction of income: This typically means losing your job, but for low-income households it can also be the result of decreased funding in subsidized financial assistance programs. It’s estimated that around 60% of all personal bankruptcy claimants have annual incomes of less than $30,000.
- Reduction of benefits: Many American workers saw their benefits plans (such as insurance plans and retirement plans) decrease quite a bit after the economy faltered in 2008; some Americans even saw these plans disappear altogether. This has created a tough financial situation for many older adults.
- Credit card debt: This might be a result of reckless spending, but it’s often a result of dubious promises from credit card providers added to a list of unexpected expenses. Medical emergencies, car accidents, and storm damage to your home are all common ways that consumers start falling into debt. It’s no secret, of course, that credit card companies don’t make it easy to pay off these debts since they’ll be collecting interest on the money you owe.
- Student loans: It’s estimated that student loans account for around 1% of all personal bankruptcy claims; while this might not seem like much, 1% equals about 15,000 individual claims each year.
- Divorce: As if getting divorced wasn’t stressful enough, it’s easy to forget that there’s always a cost involved with any type of legal proceeding. The costs of filing for divorce can be up in the thousands, and each spouse ends up covering these costs alone. A Chapter 7 bankruptcy is very similar, ironically; it can cost anywhere between $1,000-$3,000 to file for bankruptcy under Chapter 7.
- Unexpected emergencies: Consider something like a car accident, which is never an expected situation. You’ll end up paying for hospital and medical bills, repairs on your vehicle (or a new vehicle altogether), you could end up dealing with another lawsuit if other people were involved in the crash, and your auto insurance will likely increase for a while. It all adds up, even if you have emergency savings.
While there are plenty of bankruptcy cases that result from poor financial management, it can’t be denied that the majority of personal bankruptcy claims are impossible to prevent.