In 2010 alone, 1.5 million Americans filed for bankruptcy. There are many reasons that people go under financially, and many times they can't help it. It is important to know that top causes of bankruptcy so that you can work hard to avoid these pitfalls when possible in your personal life. In order to steer clear of bankruptcy, you should set up a large emergency savings fund. This way, when a financial disaster comes your way, you will have a little extra cushion to satisfy the payments. Without a savings account, you may find yourself floundering in debt. Most Americans do not practice safe saving habits, and this is part of what creates these bankruptcies.
The number one reason that people go into bankruptcy is due to medical expenses. Sicknesses and injuries are almost always unexpected and always expensive. If you do not have medical insurance, then your costs may be astronomical. Even if you do have insurance, the out-of-pocket costs of a serious medical procedure or continuous hospitalization can be horrible. According to one study, 78 percent of all people who file for a bankruptcy file because of medical costs have insurance. Once again, try to set up an emergency savings fund for possible medical issues. This will help you to stay on top, even when you need to pay a large amount of money to medical care.
The second most popular reason for bankruptcy is job loss. About 22 percent of all Americans who file state this as their reason. Millions of Americans are unemployed, and even basic expenses become overwhelming when you do not have an income. These people have to file for bankruptcy just to get by. Unemployed individuals often pay for insurance out-of-pocket. Many of these people have to take up dozens of loans just to make rent and purchase food.
A third reason for bankruptcy is uncontrolled spending. About 15 percent of all Americans must file for bankruptcy because they cannot manage a budget or prioritize their spending. Credit card bills, large mortgages, and expensive car payments can contribute heavily to a bankruptcy. A person who can't pass up a shopping spree at the mall, or a new vehicle, will probably put the purchases on credit, and then continue making minimum payments on the card until the money runs out. Once you cannot make your minimum payments any longer, and are up to your neck, you will need to file. If this is you, then you may be able to file for a Chapter 11 bankruptcy instead of a Chapter 7. This is a perfect solution if you have a steady income, but need help controlling your shopping habits.
A fourth reason to file for a bankruptcy is divorce. 8 percent of all bankruptcies are the result of this sort of issue. The legal fees, child support costs, and alimony that are involved in some divorces may trip you up financially, to the point where you are no longer able to afford basic expenses. Also, in houses that originally relied on two incomes, splitting down to only one paycheck a month can be difficult. Sometimes a divorced couple may need to cover part of the other spouse's debts, and this can also become a cause for bankruptcy.
The fifth most popular reason for bankruptcy is unexpected disasters. Once again, this is where a savings account could save you from a bankruptcy disaster. If you live in an area where earthquakes, tornados, hurricanes, or floods are possible, you should purchase homeowner's insurance and create a special account just to satisfy the costs of a natural disaster. While you may never encounter a horrible catastrophe, if you do you could lost everything. Fires, floods, or mudslides could destroy all of your assets, and make it so that bankruptcy is your only option to get back on top. If you stay on top of your finances and make sure to put plenty of money away for a disaster like this, then you may be able to avoid bankruptcy. If you are one of the millions of people who have taken a toll financially from one of these situations, then contact a bankruptcy attorney to discuss your options.