With over a million non-business bankruptcy filings each year, it’s clear that Americans are continuing to struggle financially despite the sluggish economic recovery. While there are many reasons to file for bankruptcy, knowing the top 5 causes can keep you alert in case you’re treading dangerous waters. Despite recent legislation changes that have made it harder to qualify, the statistics for bankruptcy filings in America are alarming. Below is a compilation of the top 5 causes of bankruptcy. If you or a loved one fall into any of these scenarios, be sure to exercise extra financial caution until the situation is resolved.
Reasons For Bankruptcy
Out of the 5,000+ Americans who file for bankruptcy each day, many of them do so because of medical debt. For the last few years, medical debt has been one of the leading causes of bankruptcy filings and recently took center stage during the Affordable Health Care Act debate. The full list includes:
- Medical expenses. Expenses incurred from hospital visits aren’t completely covered by insurances. Large co-payments can lead to medical debt, which can lead to a bankruptcy. It’s estimated that 75 percent of bankruptcy filings due to medical debt were done so by people with insurance.
- Job loss. When income stops flowing in and bills need to be paid, many people find themselves in an incredibly difficult situation. Though the labor market is improving, it’s important to remember that the unemployment rate has hovered stubbornly around 8-10 percent. If you have experienced a job loss, be sure to act cautiously to prevent a bankruptcy.
- Divorce. Aside from the strenuous dissolution, the sudden severance of two incomes from two spouses creates a financial strain. Legal costs as well as asset allocation can cause a bankruptcy
- Natural disasters. An unexpected natural disaster such as an earthquake, flood, tornado, or fire can destroy your home and all your belongings. The disaster itself or the cost to recover could trigger a bankruptcy.
- Poor money management. While many causes of bankruptcy such as unexpected medical debt or natural disasters are out of your control, poor money management is one thing that everyone can improve. Excessive spending and credit card debt composes 15 percent of all bankruptcy filings.