Do not buy into the idea that bankruptcy only happens to those who make poor financial decisions. This is a common myth, and it’s the reason a lot of people feel ashamed to even file bankruptcy — or, at least, to tell people about it. They feel like it is an admission that they have made a mistake or failed in some fashion.
When you look at why bankruptcy actually happens, though, you’ll find that your own decisions often have very little to do with it. This isn’t to say that people haven’t gone bankrupt after overspending or something of this nature, but it’s just not nearly as common as most people assume. Here are a few of the main reasons it happens.
Loss of a job or reduction in wages
You base your spending and debt on your earnings. This is why budgeting is so important, and it’s possible to do a perfect job of creating a budget that works — and then lose your job or see your wages cut. It happens, it can be unexpected, and it’s not even because you did anything wrong at work. The company you worked for may have made its own financial mistakes and decided to rectify them by downsizing.
One of the top reasons for bankruptcy is medical debt. Again, you can’t plan for this and it’s not your fault. You may just get sick or injured and need care, regardless of how expensive it is. In the United States, medical care is often so incredibly expensive that just a few days could create debt you can never pay off. Not only is the initial ailment not your fault, but neither is living within a healthcare system that allows this to happen. It’s not something you control.
Unexpected bills and other costs
Maybe your car broke down and you had to drop thousands to get it fixed. Perhaps your spouse asked for a divorce and it got very expensive. Maybe a storm damaged your house and your insurance didn’t cover it. There are many ways unexpected costs can wreck your financial position.
What comes next?
If this happens to you, don’t worry. It happens all the time, to thousands of people. Just start looking into your legal options.