The common stereotype about bankruptcy is that it happens because of reckless spending. Someone buys things that they do not need and cannot afford, and eventually they can’t pay what they owe. They use bankruptcy to get out of a bind.
But is this stereotype true? While these cases do exist, the reality is that they make up a minor fraction of bankruptcy filings. The vast majority of cases have far different causes. Here are a few of the real reasons that people file for bankruptcy.
They suffer a reduction in income
People often budget based on their current income, hoping that the only changes they’ll see will be an increase. However, if that income is reduced, the budget quickly doesn’t make sense. That doesn’t always mean they can adjust it, though, as they may be locked into things like mortgage payments and other expenses. That’s why people file even when they do have an income.
They lose their job
The most extreme version of the above is when someone loses their job entirely. If they can’t get another job quickly, how long can they keep paying the bills? For many, the answer is just a few weeks. Plus, what if they get a job that pays less? This is also a form of income reduction, and it can ruin a budget.
They encounter high medical bills
It’s easy to take your health for granted, but things can change quickly. With or without insurance, a sudden disease or injury can cost more than you could ever hope to pay. That’s not your fault; you never planned on these costs because you can’t predict things like this. Some studies have shown that medical bills cause more than half of all bankruptcy filings.
What are your options?
These are just three reasons, though they are three of the most common. If you’re facing bankruptcy for one of these reasons or any other, be sure you are well aware of all of the legal options you have. Don’t worry about the stereotypes. Address the issue with the legal tools at your disposal.