When it comes to getting into financial trouble and going bankrupt, many people think the reason is poor finances. While this does play a role, there are other reasons why people go bankrupt. In fact, in some cases, the cause of bankruptcy is out of the control of the person involved.
Someone who is doing the right things financially and saving money can still find themselves staring in the face of filing for bankruptcy. So what are the major reasons why people go bankrupt? And what can you do to protect yourself?
In this post, I’ll answer these questions. Let’s get started!
5 Major Reasons Why People Go Bankrupt
#1. Medical Debt
Overall, the leading cause for people to go bankrupt is medical debt. In fact, Harvard University found that 62% of all bankruptcies were due to medical debt. When you take a minute to think about this, it shouldn’t surprise you.
The cost of healthcare is ever rising and as advances in technology bring about better healthcare, more and more people are becoming patients. Add to the fact that health insurance is also expensive and confusing, it is no wonder why people face astronomical medical bills.
I’m certain most readers found themselves at one point in shock when they opened up a bill from a hospital or doctor and saw just how much they owed.
#2. Job Loss
Another major reason why people go bankrupt is job loss. This is especially true when the economy hits a downturn and companies begin to lay off workers. But it can also happen anytime.
The main reason behind bankruptcy here is two-fold. One could be the poor management of personal income. Having an emergency fund is critical to cover yourself in the event of a job loss.
But even with an emergency fund, it may not help you completely avoid filing for bankruptcy. This is because it can take much longer to find a job.
For example, some older Americans are still looking for full time work many years after the housing bubble burst. I’m sure that even if they had the recommended 8 months worth of expenses saved in an emergency fund, they would be feeling the pinch.