What Are the Most Common Causes of Bankruptcy?
While bankruptcy filings have declined nationwide since 2015, Virginia’s bankruptcy rate from April 1, 2015 to March 31, 2016 of 269 per 100,000 residents exceeds that of the national average, 224 filings per 100,000 people. While many people mistakenly consider bankruptcy a last resort, the truth is that it offers a safe and legal way to handle overwhelming debt, which can happen to anyone dealt a major financial blow due to circumstances beyond their control.
What are the most common reasons people file for bankruptcy? Here are a few:
- Medical bills: One study from Harvard University indicates that approximately 62 percent of all personal bankruptcies in the United States are a result of staggering medical expenses. Of those, 72 percent had health insurance but were still unable to meet their financial obligations for medical treatment.
- Loss of income or job: When companies decide to cut back on their expenses, they are likely to decrease wages, eliminate bonuses or lay off employees. Significant reductions in wages or a job loss is a common factor in bankruptcies.
- Credit card debt: Not all credit card debt stems from reckless spending. In many cases, people need to use credit cards to pay for medical bills or emergency expenses or to make up for a lack of money right after a job loss. The high interest rates of credit card debt make it very challenging to pay off the balance.
- Divorce: People who have just gone through a divorce need to adjust to their new financial circumstances. They may not be able to maintain the same standard of living they had while married. Additionally, there are likely to be costs stemming from the divorce, including alimony, child support and legal fees.
- Emergency expenses: A car crash, catastrophic storm damage and other unexpected expenses can lead to bankruptcy if the damage is significant and if one does not have emergency savings.
These are just a few of the most common causes of bankruptcy. In most cases, it is not a result of poor financial discipline but rather a combination of factors. To learn more about your options, consult with an attorney at Miller Law Group PC, working as a debt relief agency serving central Virginia.