It’s often assumed that people file for bankruptcy because they spent too much money. Maybe someone had a shopping addiction or a gambling addiction, so they spent money they couldn’t afford. They now have extensive credit card bills, and they can’t pay things like car loans or mortgage loans, so they turn to bankruptcy to try to eliminate their debt.
These things do happen, as overspending is one potential reason for bankruptcy. But it’s not as common as people assume, and it certainly doesn’t contribute to all cases. Here are some of the other common reasons that people file, which are often out of their hands.
Expensive medical bills
Medical expenses can be very significant, even for people who have insurance. Say that someone’s child needs emergency surgery. The parent rushes them to the hospital, but that hospital isn’t in their insurance carrier’s network. The parent is likely still going to authorize the surgery because they’re only thinking about their child’s health and well-being. But if the insurance denies them coverage, they could be facing millions of dollars in medical debt.
Job loss and income reduction
Often, the problem is that people had affordable debt based on their income, but that income changed. Say that someone is an executive at a tech company, so they’re making a good living and they buy cars, homes and other assets. But then the technology changes, the company begins earning less, and that individual gets laid off. Without an income, all of their debt is no longer affordable, even though they didn’t make any spending mistakes previously. They may use bankruptcy to eliminate some debt or reorganize it based on their reduced income.
The bankruptcy process can be helpful, but it’s also complex. If you’re considering it, be sure you know what legal options you have.
