The statistics on bankruptcy are alarming. Today, a huge number of people incapable of paying their debts has dramatically increased and Congress has since confronted this subject with laws that make it harder to meet the criteria for filing for bankruptcy. Filing for bankruptcy could have major ramifications for individuals, corporations, as well as the economic growth of the country. Below, we have compiled a list to show the common causes of bankruptcy in the country today.
Medical Expenses
Medical debt and bankruptcy as a result of medical debt are common. Approximately 19 percent of households in the country cannot pay for healthcare costs, while more are struggling to keep up with their medical expenses.
Although the Affordable Care Act improved accessibility to Medicaid as well as private coverage, medical issues account for over 60% of bankruptcies. Many medical debtors have coverage under the new ACA policies, which rarely cover entire expenditures. Common reasons for medical bankruptcies include medical costs, prescription drug expenses, doctors’ charges, insurance rates, and lost income from ailments. The market-based healthcare system in the United States exacerbates the country's enormous income disparity problem.
For many people, a $500 unforeseen hospital bill could be too high to bear. To cover such a bill means having to take out a loan, repay the money over time, or never pay it back at all. Deductibles for many critical health conditions are substantially more than 500 dollars. Most insured Americans spend all or most of their savings on medical expenses.
Even if you have medical coverage, you are still vulnerable to the perils of medical debt. High deductibles are common in insurance plans. Even for individuals with a stable financial status, the deductibles could be so high that a handful of medical emergencies can put them in considerable debt, which can ultimately lead to financial hardships and eventually bankruptcy.
Structuring your emergency funds is also another strategy that could assist you to fight medical debt. Medical bills consume a large portion of most people's savings, if not all, of their money. The more funds you have saved in your account, the better your chances of supporting yourself as well as your family in the event of a medical emergency. Do not feel that just because you have insurance, you are impervious to medical debt; insurance doesn't shield you from the financial distress of the high deductibles.
Unexpected Job Loss
A job loss, either as a consequence of being laid off, a sudden illness, or being dismissed, usually denotes the loss of someone's primary form of income. A severance payout could help to soften the impact in certain situations, but severance payouts are designed to help people transition from one position to another, not to preserve their lifestyle for an extended period of time.
Getting another job might not be easy or quick in a labor force where unemployment levels are at an all-time high and the competition for prospects is fierce. If you do not have an emergency fund that could cover your living expenditures for up to 6 to 12 months, losing your job can quickly lead to bankruptcy. You'll need money to pay for things like food, housing (or mortgage), transportation, insurance, child-related bills, taxes, utilities, car and home maintenance, and so forth. If you incur an unexpected large expense like medical expenses, you could use your emergency fund; just ensure that you replenish it as quickly as possible.
You likely are unable to entirely reduce your risks of losing a job. However, there are some actions you could take to better your finances in case something does happen. Being a resourceful employee with a positive outlook, for instance, can help you stay on the right side of your employer. You can also build up your knowledge and skills to make yourself more eligible for different types of positions.
Credit Card Debts
It's not unheard of for people to have many credit cards. The typical American holds about four credit cards, as per Experian's 2019 Consumer Credit Report, and carries credit card balances of $6,194. Even though it is perfectly feasible to use these credit cards wisely, it's also quite easy to get into the pattern of holding a balance on them, making impulsive purchases or engaging in shopping therapy, or even losing sight of how and where frequent credit transactions were made.
This could lead to actions like paying off a credit card debt with another, skipping payments, making minimum payments only, and so forth. Each one of these acts bears a hefty price tag in terms of interest, charges, and fines, thereby aggravating the situation. It is extremely hard to get a hold on credit card debts as well as other forms of unsecured consumer debt without any form of help.
What is the solution in this case? Do not let credit card debts build up until filing for bankruptcy is your only logical option. Spend only that which you can stand to pay back and make your payments on time---in full. This keeps you away from having to pay the high interest rates on these credit cards. Moreover, try to keep your credit utilization rate at 40% or below. If you have a large credit card debt, remember that you can undoubtedly pay it all off and also that many individuals have done so with debts of over $100,000. Paying off any high-interest debts first is among the most efficient methods of becoming debt-free. Credit card interest of 20 percent or more is far more expensive than 5 percent mortgages or auto loans.
Divorce or Separation
Divorce and separations put both people under a lot of financial stress in several different ways. The attorney's fees which come first can be outrageously expensive in some situations, then by a distribution of marital property, a declaration of support payments and alimony, and lastly the continuous costs of maintaining two separate houses after the divorce. Legal fees alone would be enough to push some people to file, whereas wage garnishments to pay outstanding child support and alimony can make it impossible for some people to make their payments. When one spouse fails to cover the support stipulated in the settlement, the other party is often left destitute.
Poor Spending Habits
Bankruptcies are more often caused by excessive spending which occurs when people finance a huge part of their lavish lifestyles. They buy expensive cars and homes that they can barely afford, along with boats, pricey furniture, and other large-ticket items because the first payment terms appear to be harmless.
Credit card debts, installment debts, automobiles as well as other loan obligations can quickly spiral out of one's control, leaving the borrowers incapable of making even the smallest payments on each form of debt. When the borrower is unable to raise capital from their friends or relatives or secure a debt-consolidation loan in any other way, bankruptcy is often the only option. The majority of debt-consolidation schemes fail because of several reasons and many participants just delay the bankruptcy filing.
While home equity loans could be a good solution for unsecured debts in some situations, reckless borrowers who are incapable of making this payment will now risk foreclosures on their homes if those payments are not timely made. The issue is that putting too much money on credit leaves you in a vulnerable position if you have a significant medical crisis or if you lose your job. This could result in a creditor filing a lawsuit against you. If a lawsuit is filed against you, the fear of a wage garnishment, bank levy, or a lien on your home is quite possible. It is wiser to live within your means or to buy scaled-down equivalents that you could afford.
Unexpected Expenses
Property loss as a result of theft or catastrophes, like earthquakes, hurricanes, fire, or tornadoes, can drive some people into bankruptcy. Some homeowners are probably unaware that some occurrences, like earthquakes, require separate insurance coverage.
Anyone who doesn't have insurance for this kind of catastrophe risks losing not only their home but also the majority if not all of their belongings. Not only do they have to pay for a replacement for these possessions, but they also have to find necessities afterward. While not common, people who lose their clothes in such disasters could be unable to dress properly for their workplaces, which could compromise their positions.
Other unexpected expenses, such as large hospital bills or major home maintenance and repairs, might knock you off course, stalling your monthly expenses or putting important goals on hold. A little planning ahead of time, as well as planned savings, could go a long way.
When unforeseen expenses require money beyond your regular budget, an emergency fund could allow you to stay afloat. There is no universal standard for emergency savings. However, as a rule of thumb, strive to save at least three months' worth of monthly expenditures.
You do not have to put aside this much money right away. The key, like with other financial goals, is to focus on saving little amounts regularly - sums that you will comfortably manage each month and also that will gradually accrue toward your goals
Income Reductions
A reduction in earnings is a more subtle reason why some people become bankrupt. You might not lose your job entirely but when your working hours are cut in half or you're reassigned to a lower-paying position, you could find it hard to make a decent living.
This situation could be difficult to prevent but you could similarly prepare for this as you would for a potential job loss, as described above. One other smart approach is to keep a close eye on potential part-time jobs you could take both now and in the future, if your earnings are reduced. You could, for instance, work as a weekend uber driver, freelance writer, or sell DIY crafts on Etsy.
Foreclosure
When buying a property, the most popular way to finance is borrowing money from a mortgage company or a bank to fund a fraction of the purchase. Homeowners who take out loans against the home's equity are usually taking out second mortgages or home equity loans.
In both of these cases, the creditor is likely to put a lien on the property to secure the outstanding balance and safeguard their position. When a debtor fails to keep up with their loan payments, the creditor may take immediate action and enforce the selling of that home to cover the overdue loan balances. California is a Non-Judicial Foreclosure state so no Court Order is needed in order for them to foreclose on your property. Once the Notice of Default is filed and properly served on you, you are then given 90 days to cure the delinquency. If you are unable to do so, the bank can set a foreclosure sale date 21 days after the expiration of the 90 days.
Couples who do not want to lose their homes often resort to bankruptcy to assist them in keeping them. If you are delinquent on a mortgage, Chapter 13 Bankruptcy is a common and very effective way to prevent the foreclosure. However, you could potentially be eligible for a repayment schedule if you are not too far past your payments directly with the bank. A repayment schedule allows you to catch up on missed payments with time while staying current with your regular installments. Your income should pay both your current debts as well overdue debts for this plan to succeed. Based on the circumstances, a repayment plan could run for 3, 6, or 9 months.
Underemployment
While it's not the leading source of bankruptcy, with the growth of automation, underemployment has become a significant concern in the past several years. It's not uncommon for many people in the workforce to take up three to four part-time jobs just to make ends meet.
The fact that many part-time employers do not provide full-time benefits significantly complicates the situation. For this reason, employees are still responsible for their healthcare coverage. The Affordable Care Act makes it possible to do so with the help of subsidies. However, when the person makes a considerable amount of income, it could reduce the amount they're eligible for or restrict them entirely.
Student Loans
College tuition has become increasingly pricey. As per the most current statistics, student loans have overtaken credit card debts as the second-highest source of household debt following mortgages. Student debts affect an estimated 42 million Americans (this is almost one out of every eight people). Student loan debt could quickly become overwhelming, contributing to the call for bankruptcy protection. Even though student loans are likely a non-dischargeable debt when filing for bankruptcy relief, it could still relieve other types of debts, such as credit cards, medical bills, etc., freeing up extra money to pay the student loan obligations.
Find a Sacramento Bankruptcy Attorney Near Me
Whatever your reasons are, declaring bankruptcy is a significant decision that could have a long-term effect on your finances. You need to speak with an expert who can evaluate your unique circumstances and provide guidance on how to effectively get out of debt.
Sacramento Bankruptcy Lawyer is here to help you plan for and navigate the bankruptcy process. Our dedicated Bankruptcy Attorney has years of experience dating back to 2009 assisting clients in Sacramento in getting bankruptcy relief. If you think you are headed for bankruptcy or would like to discuss options regarding bankruptcy, contact us today at 916-800-7690 or by CLICKING HERE.
