Many people have feelings of guilt and shame for having to turn to bankruptcy as a solution to their financial problems; nevertheless, this is not often the consequence of poor decision-making. Unanticipated monetary difficulties are typically the source of this kind of situation. And if you don’t have a high salary and already have some debt, those loan payments and credit card balances can rapidly become burdensome, leaving you with no other alternative but to file for bankruptcy to obtain some respite from your financial situation.
If you are familiar with the primary factors that lead to personal bankruptcies, you will be better prepared to weather any storms that may come your way. It would help if you always made it a priority to have an emergency fund. Do your homework on health insurance, and if you have the option, select employers who provide a plan that best suits your needs. You should use a loan repayment calculator to come up with a rough estimate of the minimum monthly payments that you must be able to make regardless of the circumstances. It is counterproductive to worry about one’s financial situation if one is well informed.
The following is a list of the top five reasons people declare bankruptcy to assist you in better protecting your financial well-being.
Even if you have health insurance, the high medical expenditures that result from a significant illness or injury can swiftly wipe out your financial stability: According to a study that was conducted in 2019 and published in the American Journal of Public Health, medical concerns are the cause of 66.5 percent of bankruptcies that are filed in the United States. These issues might include an inability to pay expensive expenses or time lost from work.
It is essential to have money set up for unexpected expenses. However, if you live from paycheck to paycheck, this scenario is not feasible. It may be a complete disaster if you suddenly lose your job and are not eligible for a severance package or unemployment insurance. If this occurs to you, you should prepare yourself for the worst. When you use a credit card to fund your daily costs, you risk swiftly becoming overwhelmed by debt and eventually having to file for bankruptcy.
There are situations when you are just there in the incorrect location at the wrong instant. People afflicted by natural disasters like hurricanes or earthquakes are frequently left scrambling to reconstruct their lives after losing all of their goods since insurance companies do not cover the damage caused by these events. Theft and necessary but pricey home repairs are two other examples of unexpected forms of tragedy that can lead to personal bankruptcy.
Legal conflicts have the potential to deplete your financial resources swiftly. Both parties in a divorce will often rack up significant legal bills due to the process. Not to mention the payments for child support and alimony and the split of assets. It is possible to slide into bankruptcy if you are not prepared, if relations deteriorate into something less than friendly, or if they turn outright hostile. However, there are additional reasons why people choose to sue—and being forced to defend oneself in court, whatever the reason, may be highly detrimental to your financial situation.
Living On Credit
Leaning too much on credit may quickly lead to financial ruin. Suppose you started with just one credit card in your possession. Because someone you care about is getting married in another country, you decide to take advantage of it so that you may go on vacation even though you do not have enough money to pay for it in cash. You may use it occasionally when you’ve already spent all of your paycheck money on other things. The next thing you know, the bank is making you an opportunity to either boost your credit limit or get another card. You decide to accept it because, well, why not? Additionally, you will find that you can bear a more significant balance with increasing ease. Until the interest builds up and you can no longer make your payments, that is.