5 Common Reasons People File for Bankruptcy

Personal bankruptcy is the final strategy for individuals who are in dire financial straits. Through personal bankruptcy, people can liquidate their debts and have a chance to fix their future finances. However personal bankruptcy has several definite drawbacks.

It adversely affects credit scores, which can negatively impact everything from securing a bank loan to even buying a new house.

According to research, over 750,000 people in the United States filed for bankruptcy in 2018 alone. Although this is still a far cry from the over 2 million bankruptcies filed at the height of the recession in 2005, it’s still a shocking number.

Now, with the pandemic still looming large despite vaccination efforts, it’s time to examine what are the most common reasons for going bankrupt.

Medical Expenses

Unsurprisingly, the enormous financial strain caused by medical expenses is one of the most prevalent causes of bankruptcy. The American Public Health Association discovered that even with the Affordable Care Act in place, medical bankruptcy is still prevalent in the country.

Medical bankruptcy can lead to people defaulting on their home mortgages, uprooting their families, and shuttering enterprises.

This should hardly be a surprise when another survey discovered that 4 in 10 adults in the US can’t even cover $400 during an emergency. Medical expenses can cost upwards of thousands of dollars, due to a variety of factors.

Specialists are more expensive, the quality of long-term care facilities varies based on price and the cost of hospitalization is just some medical costs that can break the bank of most people.


Debt is another financial problem that people in the U.S. have in common. Debt tends to snowball thanks to interest and sometimes people have no alternative but to take out loans and other financial obligations. This means they add the burden of paying them on top of their previous problems.

Common forms of debt in the U.S. include housing debt from purchasing loans, college loans, and car loans. Although these expenses are well-justified, the exorbitant prices and interest rates of some providers can push people to the edge. A reliance on paying for products with credit cards can also lead to ballooning debts.

Some people even practice credit card churning, a problematic habit that incurs more bills. When enough of these debts go unpaid, some people have no choice but to file for bankruptcy.

Marital Issues

Getting married can be an expensive affair, with the wedding and starting a life together having a hefty price tag. However, divorce can be more expensive. This is because getting divorced or even separated comes with a huge list of financial burdens.

First, there are the legal fees which only grow bigger the more protracted the divorce is. Then there comes the division of the assets. Without a prenuptial agreement, one of the participants in the divorce can end up with almost nothing.

There are also incidental expenses such as moving into a different residence. Then other agreements can be tacked on to a divorce such as spousal support and child support.

Of course, the refusal to pay these agreements can also lead to bankruptcy. Without child support, a single parent can be hard-pressed to remain financially stable.

Sudden Financial Loss

Sudden expenses don’t just come in the form of medical bills or divorce. There is a plethora of reasons someone might suddenly lose their money. The two most common reasons for such loss are theft or casualties in natural disasters.

For example, the massive wildfires in California in 2020 have been estimated to be worth $10 billion, mostly on private property and infrastructure. If someone suffers a fire or a theft without insurance coverage, they can be put in the red almost immediately.

Even with insurance, these events can lead to financial loss. For example, if someone’s car is stolen, they may be impeded in getting to work while they process their insurance and hunt for a new car.


Finally, job loss is another common cause of bankruptcy. Without a source of income to rely on, bills can pile steadily, loans can go unpaid and it will be close to impossible to secure more loans to cover these expenses while job hunting. Without a job, people have a harder time with everything, such as securing a home or even a cellphone plan.

Joblessness has increased in the previous months due to the pandemic, peaking at almost 15 percent in March due to shutdowns. The numbers have dropped to 6.7 percent as of November 2020, but that still means millions of Americans reeling and probably filing bankruptcy paperwork.

Bankruptcies should not be a normal occurrence in an otherwise financially healthy country, but the numbers presented by experts have painted a distressing image. With enough support and a robust emergency plan though, people can bounce back from their bankruptcies and forge a new and more financially stable future.

One Comment

  1. I had no idea that bankruptcy helps you get away from your unpaid loans by liquidating your assets. My friend tried investing in crypto and lost most of his savings because of its volatile market. Perhaps we should look for a bankruptcy lawyer that can assist him in this.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button