Bankruptcy, in simple terms, is a state of insolvency where an individual or organization is able unable to pay their dues. The term personal bankruptcy applies to individuals or married couples where, if they declare to be insolvent, they can be relieved from consumer debt incurred for personal reasons such as family or household expenditures. The term corporate bankruptcy, on the other hand, applies to organizations. In today’s era, the personal bankruptcy statistics in several countries have been alarming. There are several causes behind such unnerving circumstances. Following are a few of them:
In most countries, medical expenditures happen to be the leading cause of people declaring a state of bankruptcy. According to a study in Harvard University, approximately 62 percent of bankruptcies in the USA are because of the inability of people to meet their soaring medical bills. Surprisingly, 72 percent of these are people who possessed some form of health insurance.
Losing a job and hence, income can be quite devastating. Some people may be lucky enough to receive benefits or pay a while after being laid off, but most aren’t that lucky. With the economy facing inflationary pressures and some people not having an emergency fund on the side, losing a job could ultimately result in them being bankrupt.
Credit card debt
In several cases, such debt accumulates because of reckless spending. However, in many cases, the accumulation of credit debt can also be attributed to medical expenses, job loss, or emergency outlays. Also debt consolidation leads to trouble if the holder is unable to meet their consolidated debt payments, the eventual outcome that remains is to file for bankruptcy.
It is not used as a mere groundless accusation for facing money trouble. Divorce and separation are actually an extortionate business. Either one or both partners could end up losing not just a lot of money but also their personal property and assets. Aside from alimony, there also exist the issues of child support, legal fees, and managing a household on a single income. All these add to the financial burden.
Life is unexpected, which is why we all must prepare and save up in the case of emergencies. However, sometimes, unexpected events such as earthquakes, hurricanes, or theft can cause a major dip into one’s savings, leaving no option but declaring bankruptcy.
It is surprising how a simple loan for one’s education can actually lead to utter insolvency. Of course, this is bound to happen if a person does not plan on paying it off right after graduation. The more it is put off, the higher the interest accumulates and the more financial trouble it creates.
Living beyond one’s means is a primary cause of becoming insolvent. Often people fail to realize the importance of good financial planning. They take money for granted and spend it as their heart desires. While the economy faces inflation especially in these times, it becomes harder and harder for such people to survive due to their already existing debt. The eventual result is to declare bankruptcy in order to be free from the burden of debt.