A common misconception is that irresponsible people are usually the ones to become debtors and go bankrupt, thus, those who file for bankruptcy are frequently assumed to be irresponsible. However, nothing could be farther from the truth. While it is true that bad budgeting or overspending may be attributed to being irresponsible, financial management is harder than ever, thanks to inflation. Often, a combination of bad budgeting and a habit of spending too much money can cause debt to skyrocket and lead people to file bankruptcy a lot faster than expected.

Nonetheless, there are times when overwhelming debt may have been a result of life-changing events that people have no control over. We, at Northwest Debt Relief Law Firm, are here to dispel these unpleasant assumptions about bankruptcy filings.

It is unfair to be prejudiced against a person who files for bankruptcy since there are many other causes of bankruptcy besides poor debt management. Some of them are unexpected and not at all to any fault of the individual. Here are some of the most common:

➤Medical expenses

Causes of BankruptcyA study done by Harvard University indicates that the leading cause of bankruptcy is medical debt. These expenses account for 62 percent of all reported personal bankruptcies. The study also shows 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. These staggering amounts can quickly wipe out life savings and retirement accounts, college education funds and home equity. Filing a bankruptcy petition may not just be the last resort, but the only solution to these financial problems.

➤Reduction in Income

In times of financial distress, some companies choose to cut costs to keep the company afloat. In such instances, this may mean employees receiving pay cuts and bonus reductions. If you suddenly find yourself with a lower monthly income, you may find that yourself unable to pay all your usual living expenses, resulting in overwhelming debt.

➤Job loss

Losing your job, whether through layoff, termination, or resignation equates to the loss of regular 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 receive severance packages, you may not be as lucky. Without an emergency fund, the easiest alternative is to use your credit cards to pay off bills. This move could lead you to ever-mounting credit card debt. The loss of insurance coverage and the cost of COBRA insurance also drain the job seeker’s already limited resources. If you are not able to find similar gainful employment in time, you may find it challenging to recover from missed monthly payments.

➤Divorce or separation

Marital dissolutions result in dreadful blows on the finances of both parties. They need to deal with fees for legal services, which may be considerable.  They also need to deal with the division of marital assets, paying off child support and/or alimony, and keeping up two separate households after the split. The cost of legal representation is just another item on the long list of expenses that cause divorcees to file for bankruptcy. In some circumstances, 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 the borrower is no longer able to even settle the minimum amount due for the different types of debt. In the end, the borrower will have no other choice but to petition for bankruptcy if funds are not obtainable with the help of friends or family or debt consolidation.

➤Unexpected Expenses

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 to turn to the bankruptcy process. 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 Americans fail to keep current on their mortgage payments, they may face foreclosure on their homes. When this happens, more than 1% of them resort to engaging in bankruptcy proceedings. Bankruptcy provides the opportunity for debt reorganization, which may prevent them from having to foreclose in the future.

➤Utility payments

With inflation, utilities can get very expensive. Paying for gas and electric as well as other necessities can lead to debt.

➤Student loans

A lot of people continue paying off 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 bankruptcy cases 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 disposable income is running low but you won’t stop spending, do not be surprised if you suddenly find yourself in the red. Bills come at a steady pace. Financial obligations do not disappear just because you do not have sufficient means to pay your debts. There are many reasons why people are forced to seek bankruptcy protection, 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. Some of the best bankruptcy attorneys are at Northwest Debt Relief Law Firm. Our bankruptcy lawyers will help you with the bankruptcy options available to you and guide you on the path to a fresh start. Call us now for a free legal consultation and initial case evaluation.

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