If you are considering bankruptcy to help with overwhelming debt, you are not alone. In our current economic client, our country faces record levels of unemployment and unforeseen challenges for paying off debt. Bankruptcy was not all that uncommon before a pandemic hit, and bankruptcy courts are expecting a new wave of filings in its aftermath. So, what are the most common reasons individuals file for bankruptcy?
If you have ever had to pay a medical expense that wasn’t covered by insurance, you know just how quickly those expenses can add up and spin out of control. And having insurance does not guarantee you won’t have bills. Unfortunately, coverage limits and copayments can stick patients with bills that wipe them out financially.
Losing your job
Millions of people have been laid off due to the pandemic, but job loss was a top five reason for bankruptcy even before Covid-19. Unsurprisingly, the financial sector expects the new layoffs to serve as the main cause of the expected increase in bankruptcies. Although some people receive a severance package or have an emergency fund saved, most people do not. They try to survive on unemployment and credit cards to pay their bills, but eventually, the money runs out.
Built-up credit card debt
That leads to the third reason for bankruptcy – a build-up of credit card debt. People spend beyond their means for many reasons with credit cards. Sometimes they use it to cover medical debt, as discussed above, or because they lost their job and they hope they can pay the cards off once they find a new one. For others, they simply don’t budget well and fail to keep track of their spending, which reaches beyond their ability to pay.
End of a marriage
Many married couples rely on two incomes to pay for household expenses on a single home. Legal separation and divorce are expensive for several reasons. Legal fees often go far beyond what they imagined. In addition, they now must manage two homes, divide all savings and retirement accounts, as well as debts, in some cases. Add to that child support and/or alimony obligations, and you can see how separating couples can quickly spiral downwards financially.
Even people who manage to avoid all of the above can find themselves in the midst of a disaster they did not see coming. For example, not all homeowners’ insurance covers natural disasters like floods, hurricanes, tornadoes or earthquakes, as people found out during Hurricane Sandy. People lost everything they owned with one storm.
The good news is that the CARES Act provides additional protections for consumers who face bankruptcy due to COVID-19. No matter what the reason for your bankruptcy, you have options available to you.