- Filing bankruptcy is the most extreme form of debt relief.
- Reduced income or increased expenses are the most common reasons people file for bankruptcy.
- Bankruptcy alternatives oftengive you more control over your debt relief journey if you do not need protection from the bankruptcy courts.
Struggling to pay bills not only takes a toll on your finances but can chip away at your physical and mental health. After months and sometimes years of struggle, you may decide that bankruptcy is the best way to achieve the debt relief you need. While the circumstances that lead to bankruptcy are individual, people file for five primary reasons.
Unpaid medical charges are the number one reason people file for bankruptcy.Part of the reason may be that healthcare expenses quickly accumulate when you experience an unexpected illness, and often accompany a reduction in income that compounds the problem. A major surgery, hospital stay, or accident can lead to high out-of-pocket costs even with insurance. In fact, 62% of people filing bankruptcy cite medical bills as the primary driver, and 72% of those had medical insurance.
Loss of Employment or Reduction in Pay
Income and expenses go hand in hand. When revenue falls or you lose your job, you may no longer have the means to pay exiting bills. It is not easy to abruptly adjust living expenses to accommodate a reduction or loss of income. And in many cases, it results in missed payments that can stack up and eventually lead to bankruptcy.
Money Mismanagement (Using Too Much Credit)
Spending more than you make will always lead to a financial crisis because it is not sustainable. In most cases, it results from overspending on high-interest credit cards that you cannot repay. Credit card providers require small monthly payments that barely cover the double-digit interest charged. In doing so, you can get trapped in a debt cycle that eventually leads to a large percentage of your income servicing the debt.
Bankruptcy often follows when the minimum monthly payment becomes more than you can afford.
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Divorce and Separation
Divorce and separation effectively reduce household income because the same amount of money must now support two households. Expenses like food, toiletries, and transportation tend to remain the same but are now divided across two homes. However, costs for housing and utilities generally rise significantly. These higher costs can put a tremendous strain on finances.
Add in the costs of attorneys and legal proceedings, and expenses can be substantially higher. If you cannot reduce expenditures to match the permanent or long-term reduction in your income, you may find yourself unable to pay all your bills.
Unexpected expenses can occur if you need a car repair, to replace a worn-out furnace, or cover co-pays and deductibles for a healthcare procedure. These events can create a financial crisis if you have not saved enough money.
Families without savings may use debt to bridge the gap between income and expenses. However, if you don’t have enough income to save a little each month, the new bills could create a financial hardship and lead to even more debt.
The Federal Reserve reports that 39% of adults in the US cannot cover a $400 unexpected expense without creating a financial hardship. Even minor vehicle and home repairs could cost a thousand dollars or more, even with insurance. Without savings, debt may be the only way to pay for unexpected costs.
When you can no longer afford the debt payments, you may turn to bankruptcy.
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Financial management is the process of organizing payments in such a way that you only spend what you earn. Any event that alters that arrangement can quickly cause a financial crisis. Loss of income or increased expenses can lead to a financial crisis.
If you are considering bankruptcy but earn enough to pay most of your bills,you may be able to avoid bankruptcy by enlisting the help of other debt relief programs.
Debt settlement may be the best option if you can’t make all the minimum payments but earn enough to put something toward paying unsecured debts each month. In the program, you repay creditors less than the total amount owed while avoiding bankruptcy. Learn more by contacting us today at XXX.
What are the top reasons people file for bankruptcy?
The most widespread reasons people file for bankruptcy includeexcess medical bills, divorce or separation, job loss or lost income, unexpected expense, and overspending.Anytime income falls or costs rise, you may need debt relief if you cannot rectify the financial imbalance.
What are my options if I can’t pay my bills?
When income is less than expenses, and you run out of credit lines, you may need to seek help from a debt relief program. Bankruptcy, debt settlement, and credit counseling are all forms of debt relief that can help when expenses are higher than income.