A common misconception is that irresponsible people are the ones who usually file for bankruptcy. However, nothing could be farther from the truth. While it is true that bad budgeting or overspending may be attributed to being irresponsible, managing money is harder than ever thanks to inflation. Thus, a combination of bad budgeting and a habit of spending too much money can cause your debt to skyrocket and lead you to bankruptcy a lot faster than ever expected. But, then again, there are times that overwhelming debts may have been a result of life-changing events that you have no control over. We, at Northwest Debt Relief Law Firm, are here to take off the wool over your eyes and enlighten you about the realities of bankruptcy.
It is unfair to be prejudiced against another person who files for bankruptcy, to judge that he or she was irresponsible. Why? Because there are many other causes of bankruptcy. Some of them totally unexpected and not of their fault. The following are just some of the common ones:
A study done by Harvard University indicates that the leading cause of bankruptcy is due to medical expenses. These expenses account for a whopping 62 percent of all reported personal bankruptcies. The study also showed that 78% of filers had some form of health insurance, thus bucking the myth that medical bills affect only the uninsured. Rare or serious diseases or injuries can easily result in hundreds of thousands of dollars in medical bills – staggering amounts that can quickly wipe out life savings and retirement accounts, college education funds and home equity. Bankruptcy may be the only way out when they are left almost penniless, regardless of whether the patient or his or her family had health insurance to cover a portion of the bill or not.
➤Reduction in Income
There may be times that some companies also have to cut costs to keep the company afloat. In such instances, this may mean employees putting up with pay cuts and bonus reductions.
Losing your job, whether through layoff, termination, or resignation equates to the loss of income. This may mean challenging times ahead especially if you have not been able to set aside enough funds to tide you over to the next job. While some people may be able to receive severance packages, others are not as lucky with finding pink slips on their desk without any prior notice. An emergency fund will have been helpful. Otherwise, you will have no choice but to use your credit cards to pay off bills and this move could entrap you in debts with no clear indication on whether you can pay them off later on. The loss of insurance coverage and the cost of COBRA insurance also drain the job seeker’s already limited resources. People who are not able to find similar gainful employment for a long period of time may find it challenging to recover in time to pay off creditors.
➤Divorce or separation
Marital dissolutions result in dreadful blows on the finances of both parties. They need to deal with legal fees, which may cost a lot of money. They also need to deal with the division of marital assets, paying off child support and/or alimony, and finally the ongoing cost of keeping up two separate households after the split. The mounting costs of legal representation are enough to force some people to file for bankruptcy, while wage garnishments to cover back child support or alimony can strip others of the ability to pay the rest of their bills. Spouses who fail to pay the support dictated in the agreement often leave the other completely destitute.
➤Excessive use of credit
Credit companies are aggressive in selling their credit cards, mortgages, and other forms of consumer debt. However, credit card bills, installment debt, and other loan payments can eventually get out of control, until eventually, the borrower may not be able to even settle the minimum amount due for each type of debt. In the end, the borrower will have no other choice but bankruptcy if funds are not obtainable with the help of friends or family or debt consolidation.
Other times, unexpected expenses such as loss of property due to theft or natural calamities like earthquakes, floods or tornadoes for which the owner is not insured can force some into bankruptcy. Most homeowners are now aware that there is a separate coverage for fortuitous events like earthquakes. As such, they can lose their homes, if not all of their possessions in the face of such calamity.
When people face foreclosure on their homes, more than 1% of Americans to filing for bankruptcy. This enables them to re-organize their debt which may prevent them from having to foreclose in the future.
With the rising costs in real estate, the utility payments people have to pay are also increasing. Heat, electricity and other necessities are paving the way to bankruptcies.
A lot of people have not been able to fully pay their student loans well beyond college. Studies show that student loans account for 1% of all filed bankruptcies. That 1% translates to approximately 15,000 bankruptcies a year.
➤More money being spent versus the income earned.
At the end of the day, people have to keep track of expenses. When your income is running low, do not be surprised if you may be in the red sooner than you think. Bills come at a steady pace. They will not stop just because you do not have sufficient means to pay them off. There are many reasons why people are forced-or choose-to declare bankruptcy. But more often than not, common sense, sound financial planning, and preparation for the future can nip the problem in the bud.
Should you speak to a bankruptcy attorney in Seattle?
Worse comes to worst, you may need solid legal advice before you actually dive into bankruptcy. Do not hesitate to speak to an experienced bankruptcy lawyer in Seattle. One of the best bankruptcy attorneys is at Northwest Debt Relief Law Firm. Our bankruptcy attorneys will help you with the options available to you and guide you on the path to a fresh start. Call us now for a free initial case evaluation.