In most cases, a combination of factors leads to financial hardships severe enough to warrant bankruptcy. It usually comes as two blows at once. This would be an example of someone who has lost their employment and subsequently been diagnosed with a life-threatening illness. A good example would be taking on a large mortgage just as the job that was supposed to pay it unexpectedly vanishes. Negligent money management is a possible contributor, but it’s usually not the main culprit.
Unaffordable Foreclosure/ Mortgage
Home mortgages, which account for the most significant share of debt levels in the United States, are the primary cause of bankruptcy for about half of all borrowers, which is why you may require foreclosure defense. It contrasts with other forms of consumer debt, such as credit cards, automobile loans, and school loans.
Creditors also play a role in this phenomenon, as many borrowers may be encouraged to purchase more costly residences and take on larger mortgages than they could reasonably afford. Borrowers could easily become in over their minds when banks have loose lending restrictions, as they did leading up to the real estate bubble of the 2000s.
However, by mid-2020, the “harshest loan-approval requirements in years” will have been implemented, as the industry publication American Banking reported. Although this is little comfort for those who desire a mortgage but can’t acquire one, the stricter rules may eventually lead to fewer bankruptcies.
Loss of Employment
The financial consequences of losing one’s employment might be severe. Even though some individuals may have a savings cushion or a severance payment, most individuals who file for bankruptcy after losing their jobs do not have contingency plans.
Unemployed people have a hard time making ends meet without having to pay for extra expenses like losing their health insurance and buying their own policy. The job seeker may be forced to declare insolvency if they go without a regular income for an extended period.
In the medical bankruptcy research, over 59% of participants said that medical bills significantly influenced their decision to file for bankruptcy. These issues are connected, as 44% of respondents also mentioned health issues that resulted from time away from work.
Multiple initiatives exist to assist those who have lost their jobs in continuing to receive health coverage. Since 1985, the national statute known as COBRA has allowed many terminated employees to continue participating in their former employer’s health insurance plan.
Unfortunately, under COBRA, the individual is responsible for half of the insurance premium and the former company’s share, plus an additional administrative fee.
The Patient Protection and Affordable Care Act (ACA) of 2010 were also meant to assist by making medical insurance accessible to more people. So yes, there is conflicting data on whether or not it helps reduce bankruptcies. It argued that the persistently poor had benefited the most from the ACA, even though more people now have healthcare access.
In contrast, higher-income Americans continued to be at the whim of spiraling healthcare expenditures such as increased deductibles and co-payments.
Divorce, beginning to end, can cost a lot of money. Divorce is often financially devastating for everyone involved, with attorneys’ fees, child and spousal support payments, and the added expense of splitting a household into two.
Income garnishment is a severe problem for many who already have trouble paying their bills because they can’t afford divorce or child benefits. A consumer may face financial difficulties if one party fails to make these repayments.
Hurricanes, tornadoes, and tremors can wipe out a person’s assets, and if they don’t have insurance or funds for emergencies, they may be forced into financial ruin. Few people understand the need to have seismic insurance in the event of damage caused by these events.
In the aftermath of a natural disaster, those who aren’t insured may have to pay for emergency food, lodging, and the expense of replacing destroyed or lost valuables. If someone loses their clothes, they may not have anything to go to work, which could lead to their being fired.
Whether you’re considering bankruptcy for one of the reasons mentioned above or another, it’s vital to remember that money problems directly impact well-being. Debt is stressful and can negatively affect your mental and physical health. Declaring bankruptcy allows a person to wipe the slate clean and begin again.