It is important to understand the reasons why millions of people file for personal bankruptcy. Here are some key causes of consumer bankruptcy in the United States.
1. Credit card debt
Debt that accumulates via credit cards can be uncontrollable. The risk of obtaining massive credit debt is higher with creditors who charge significant interest rates. The reasons people build up credit card debt range from irresponsible spending to financial catastrophes.
2. Job loss
Losing a job can easily cause someone to declare bankruptcy, especially if he or she does not have an emergency fund to cover living expenses. Sudden job terminations and layoffs can make it difficult to cover food, rent or mortgage, insurance, transportation, and utilities.
3. Medical costs
Sudden injuries and illnesses can be financially devastating. When someone receives news that he or she requires a major surgery or costly medication, it is often non-negotiable. Life-saving medical treatment can be too much to afford. When medical bills are too steep, sometimes bankruptcy is the only viable option.
Ending a marriage is not only fraught with emotions, but it often has significant financial implications for one or both partners. Splitting income and assets, paying legal fees, and covering child support or alimony payments can be too much to handle.
5. The threat of foreclosure
When people fall behind on their mortgages, there are not many places to turn. The possibility of losing a home causes many to declare bankruptcy. Filing for bankruptcy can save homes and prevent foreclosure.
This is a small list of a multitude of reasons people file for bankruptcy. No matter how consumers end up in financial calamity, they should consider bankruptcy as a sensible solution to debt.