The number of bankruptcy filings across the U.S. are on the rise. Common reasons that people file for bankruptcy include loss of income, medical bills, a mortgage payment that is too high, spending beyond their means, or lending money to loved ones.
Many times, it is not just one simple cause, but rather a combination of factors that contribute to why someone has filed for bankruptcy. Here are some common reasons people file bankruptcy.
Losing a Job or Loss of Income
Unfortunately, many Americans live paycheck to paycheck. According to a 2019 Charles Schwab study, 59 percent (59%) of Americans live paycheck to paycheck. Living on such a tight budget can mean disaster when the consumer loses his or her job. This loss of income puts the consumer in significant financial strain, forcing them to rely on credit to pay for necessary expenses.
Losing a job does not just mean losing a source of income. It can also mean losing access to health insurance, which can make the consumer specifically vulnerable to large medical bills without his or her job.
Medical Expenses
Another major factor contributing to filing for bankruptcy is medical expenses. Even with health insurance, the cost of receiving medical care is prohibitive, especially if the consumer has a high deductible plan. If the consumer has lost his or her job and health insurance, not having this insurance to pay for a medical emergency will put the consumer in significant financial stress. Medical bills can quickly add up, leaving the consumer no choice but to file for bankruptcy to escape this debt load.
High Mortgage and Resulting Foreclosure
According to the Federal Reserve Bank of St. Louis, housing-related debt, including both mortgage debt and home-equity lines of credit, accounted for approximately 70 percent (70%) of all household debt in the U.S. The cost of housing can be difficult for many American consumers to pay. Additionally, many consumers take on mortgages that they cannot afford. Despite this fact, lenders continue to approve buyers for loans they are not able to afford. Once accepting these loans, these consumers are at risk of losing their homes in the future to foreclosure if they are not able to continue making payments. In the event of some type of financial setback, such as losing a job or source of income and not having emergency savings, these individuals are in serious risk of losing their homes.
Additionally, many of these mortgages have rates that are adjustable. This means that the homeowner’s monthly payments have the possibility of rising if interest rates increase. If a borrower’s rate unexpectedly increases due to an interest rate hike, leaving that person with an unmanageable mortgage payment, the consumer may be forced to file for bankruptcy.
Credit Cards
As bankruptcy attorneys, we see credit card debt as one of the most common problems facing those with serious financial challenges. It is not surprising with the high interest rates, unreasonable fees, harassing debt collection calls, penalties and never-ending minimum payments that do not even make a dent in the actual debt.
Providing Financial Assistance to Others
Looking out for loved ones is an admirable quality, but charity can often put the person giving the money in a difficult financial circumstance. This is why the need to provide financial assistance to relatives or others is a major factor in why people file for bankruptcy. This financial assistance can come in the form of supporting an adult child to providing financial support to aging parents. Regardless of the reason, stretching oneself too thin to financially help a family member in need can put the helper in a serious financial downward spiral.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
