What are some reasons for bankruptcy?

Bankruptcy is not an easy decision to make, and it is certainly not for every Californian. If you think you can avoid it by consolidating debt, cutting back on expenses or any other means, you should weigh those options too. If you decide to move ahead with bankruptcy, know that you are not alone.

According to Huffington Post, there are more than 1.5 million bankruptcies each year in the U.S. and 97 percent of them are filed by people, not business owners. Here are some reasons why.

Medical expenses are thought to be the biggest reason for people to file bankruptcy. However, recent data calls into question the methods used by Harvard researchers in developing reports that 62 percent of bankruptcies could be attributed to medical expenses (yes, this is the same study that President Obama quoted in his campaign for affordable health care). The report did not separate those medical costs from the loss of work or inability to work that these same people experienced. Regardless of this lack of distinction, medical expenses are indeed one cause of bankruptcies.

Job loss and reduced income are part of the economic cycle. When business suffers, for whatever reason, employees may lose they jobs or at least have their hours scaled back. When a wage earner loses income, any savings they may have are quickly used up, especially if they are paying additional expenses. For example, they lose health insurance when they lose their job and COBRA insurance is several times more expensive than their previous premiums.

Credit-card debt also plays a big role in bankruptcies, especially if you have lost a job. You still need to pay rent and buy groceries. If the car breaks down or you have storm damage to your home, you are likely to use your credit card to pay for these essentials too. It is not hard to run up credit-card debt in this situation.

Divorce can mean more than a personal loss. With a loss of income or assets or both, you are essentially in the same boat as one who has lost a job or had their salary cut. You may not have the means to continue living as you have. Depending on your divorce agreement, you may also be on the hook for shared debts, such as your home. In this case, you may even consider bankruptcy as a step in avoiding foreclosure and remaining in your home.

The information in this article is general in nature and should not be considered legal advice.