Bankruptcy is a form of emergency financial protection. Individuals who are struggling with debt can ask the courts to temporarily stop collection activity and to discharge some of their unsecured financial obligations. Despite how common bankruptcy actually is, people often fear some degree of social stigma in re: bankruptcy filings.
There is a common assumption that those who file for bankruptcy must have made incredibly irresponsible decisions about their finances. Certainly, unbalanced budgets and frivolous spending do get some people into financial trouble and force them to file for bankruptcy. However, the most common reasons (by far) that people file for bankruptcy are not an indictment on their personal behavior whatsoever. These are some of the leading reasons why people end up filing for bankruptcy.
1. They lose their jobs
Sometimes, a company that has been successful for years makes a few bad moves and ends up struggling to stay afloat. Companies that close down or that need to restructure due to financial issues may fire or lay off many employees.
Those that lose their jobs unexpectedly are among those who may be at risk of bankruptcy. Especially if they carried a heavy debt load prior to their termination, the job loss could quickly lead to financial challenges.
2. They have major medical issues
Maybe someone is a recreational cyclist, and they get hit by someone who flees the scene of the crash in their vehicle. The injuries that result may have caused tens of thousands of dollars in hospital bills, and the cyclist doesn’t have a way to make an insurance claim against the person who hit them.
Injuries aren’t the only health issues that lead to insurmountable medical debt. Cancer and other serious illnesses can also lead to someone having too much debt because of their health issues. Medical expenses are a leading contributing factor to modern bankruptcy filings.
3. Financially assisting others
Maybe a sibling recently started a business and it failed. Perhaps a child was at risk of losing their home to foreclosure, so a parent took out a second mortgage on their own home to help. Often, those struggling financially got into that situation by trying to help someone else first.
Those who have always been responsible financially could be just a few months away from aggressive collection efforts and fear about the future. Recognizing when one’s personal circumstances overlap with common causes of bankruptcy filings might help those who are worried about their financial circumstances feel more confident about discussing potential solutions with an experienced legal professional.