The bankruptcy statistics in the U.S. have been going through the roof. Over 1.5 million Americans filed for bankruptcy in 2010 [CNN Money]. As more American families fall victim to the economic woes such as unemployment, plunging home values, and unforgiving creditors, the more substantial the rise in the number of people who are unable to pay off their debt. The most common reasons why Americans are filing for bankruptcy will be discussed in the following sections.
Thanks to a study done at Harvard University, we are enlightened about the number one cause of bankruptcy: medical expenses, which represents 62% of all personal bankruptcies. One might believe that this number is so high due to uninsured Americans. However, this is not the case ~ 78% of all filers of bankruptcy had some form of health insurance. I know from my experience as a personal injury attorney, that medical expenses from personal injuries can reach hundreds of thousands of dollars. Medical bills from life threatening diseases can reach even higher. These colossal bills can wipe out all savings, home equity, and retirement accounts.
Loss of Employment
Loss of one's job, whether due to layoff, termination, or resignation, is the second top reason for filing for bankruptcy. The loss of income can be overwhelming, especially if there was no notice, severance pay, or preparation. Individuals without emergency funds might make the unwise decision to use their credit cards to pay their incoming bills and household expenses. This unfortunately can cause them to go deeper into debt.
Excess or Poor Use of Credit
Excess use is the third top cause for filing for bankruptcy. It is not only effected by the poor decision to pay bills with a credit account, but also by over-spending, and charging way beyond your means. Credit card bills, car loans, and installment debt, can ultimately spiral out of control! If the borrower is not able to obtain a dept-consolidation loan, or acquire funds from friends or family, then bankruptcy usually becomes the best alternative.
There are other substantial reasons for filing for bankruptcy like divorce or marital separation, casualty, theft, and unexpected costly expenses due to natural disasters. As one can see, there are many legitimate reasons leading Americans to file. Sound financial planning and preparation for the unexpected can help many people avoid this option. For those individuals who need to seriously consider this alternative (in order to have a fresh start), I recommend you seek legal counsel ~ to make sure it's the best decision for you. It is important for you as an individual to fully understand and comprehend your legal rights and options.
"Bankruptcies top 1.5 million in 2010" CNNMoney, January 3, 2011
"Top 5 Reasons Why People Go Bankrupt" Investopedia, March 17, 2010