Many people ask me why people file bankruptcy in the first place. Too many people still rely on the advice of misinformed friends and family regarding common bankruptcy myths. Bankruptcy is designed to give people a fresh start suffering from financial troubles, and the following three bankruptcy triggers can happen to anyone at anytime:
1. Job Loss
This is fairly obvious, but many people still erroneously think that most people filing bankruptcy have simply lived beyond their means. The statistics paint a different picture. The most common reason for filing bankruptcy is job loss, and in this Great Recession we are still suffering, bankruptcy filings have risen drastically in recent years. Two-income households reduced to living on one income often find that a mortgage payment and two car notes are too much debt to service, and heaven help the one income household in this economy, even with 6 months of savings in reserve.
2. Medical Problem
Health insurance is a complicated and frustrating aspect of every person’s life, and often an unexpected medical problem that is not covered or treated as the dreaded “pre-existing condition” will cost a family thousands and thousands of dollars in unexpected expenses. Bankruptcy is often the only way out for these people drowning in medical debt, especially for young 20-somethings with healthy lifestyles who get hit with a catastrophic injury or illness.
Divorce and separation are very expensive, and when one partner is saddled with the lion’s share of the debt, the debt load can become unmanageable very quickly.
According to a 2001 report by the Consumer Bankruptcy Project, only 13% of debtors filed for bankruptcy protection because of credit card overspending or bad investments. The vast majority of filers simply suffered one of the three aforementioned fates.