The bankruptcy courts periodically compile statistics on why people file for bankruptcy.  It is not always wild overspending that pushes people into bankruptcy.  The credit card companies will try and make you feel guilty, that you did something wrong in life to be ashamed of, but as you can see from the list of reasons below, most debtors have legitimate reasons for choosing bankruptcy.  You should never be afraid of exercising your legal rights!

Here are the top 10 reasons why people go bankrupt (in no particular order):

Medical Expenses  — A recent study showed that medical expenses account for approximately 62% of personal bankruptcies in the US. The study also showed that 72% of those who filed for bankruptcy due to medical expenses had some type of health insurance (thus, not only the uninsured face financial catastrophes).

Reduction in Wages — Companies are cutting down on employee pay, which in turn, can result in employee bankruptcy.

Job Loss — Job loss can quickly deplete savings and assets. Plus, job loss brings extra expenses such as COBRA insurance payments.  

Credit Card Debt — Credit card companies like to portray debtors as irresponsible spenders.  But people often rely on their credit cards when facing job losses, emergency expenses or reductions in income, and once those charges go on the card, the interest can pile on exponentially.

Divorce — Divorce is costly. Divorce and separation can mean a significant loss of income and assets.  It can also mean taking on a portion of your partner’s debt if you co-signed or opened joint accounts with them.  Bankruptcy is sometimes the most logical choice after a divorce.

Unexpected Expenses — Emergencies can happen anytime.  A car breaks down, the house breaks (remember Superstorm Sandy), a pet needs medical care, etc.  Just one of these events can quickly drain savings.

Student Loans — These are a big issue today (and hopefully Congress comes up with a solution to this problem soon.)  If you have student loan debts, you are not alone. While student loans are not typically discharged in bankruptcy, people file bankruptcy to control or discharge their other debts so they can be in a better position to handle their student loan debts.  

Utility Payments — The costs of heating, air conditioning, electricity and other necessities are always rising and can quickly push people living on the edge into bankruptcy.

Foreclosure — In New Jersey, the rate of foreclosure is still higher than average.  Many people have to file for bankruptcy in order to avoid or delay a foreclosure on their homes.

Bad Budgeting — Budgeting is difficult and financial literacy is not taught to our children.  So sometimes a combination of bad budgeting and spending can lead to bankruptcy. 

While bankruptcy can provide a solution, it is not the only one.  Perhaps by consolidating debts, and negotiating with creditors, you can avoid the trouble and expense of bankruptcy.  The most important thing is to start dealing with the problems as soon as possible and finding a qualified bankruptcy attorney to help you do it.

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