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What’s Behind Most Personal Bankruptcies Today?

Here at Your Family Finances we are constantly telling you the importance of saving for emergencies, investing and saving for retirement. But sometimes events beyond your control can make even these precautions inadequate causing some people the necessity of filing for bankruptcy.

Chapter 7 Bankruptcy

According to one Las Vegas Bankruptcy Attorney “Chapter 7 Bankruptcy is currently the most common type of bankruptcy filed in the United States. This is because it is one of the quickest and easiest ways to go about the process, though this does not mean that it will be simple altogether. In fact, any type of bankruptcy will have a serious impact on your credit report and on your financial status and situation. Therefore, it is imperative that you research all other possible courses of action and assess their applicability to your situation before choosing to file for Chapter 7 Bankruptcy.”

Here are some of the most common reasons for personal bankruptcy today.

Medical Debt

Medical expenses are the single-greatest financial hurdle for most Americans and the number one reason for bankruptcy. According to the Kaiser Family Foundation, over 25% of adults have trouble paying their medical debt. Even people who have health insurance may find themselves contacting a bankruptcy lawyer after an unexpected emergency or long cancer treatments. According to a report by NerdWallet Health, more than 2 million people per year file for bankruptcy due to unpaid medical debt.

Reduced Income or Job Loss

When companies cut back and reduce hours, institut pay-cuts, or lay off workers, the end result can be employees who are pushed into bankruptcy. Millions of Americans live paycheck to paycheck and reduced income can easily make it difficult to pay basic expenses.


Divorce is expensive, even when attorneys’ fees are not considered. When both parties use a lawyer, especially when the divorce is contentious, the cost can be $15,000 to $30,000 on average. This alone can lead to financial ruin for both parties. The longer the divorce goes on, the higher the cost. There is also the fact that divorcing couples must divide property and assets, including savings, investments, and retirement accounts.

In her article, Ten Reasons Not to Get a Divorce,  author  Sharilee Swaity says, “The longer a couple stays married, the more time they have had to build up assets. You often see couples who have been together for a long time with a great deal of financial stability. Staying together often allows couples to accumulate assets and a good reputation, as both of them work together for the good of their household. Divorce disrupts this building process and forces both members of the couple to start from scratch.

Divorce is expensive in so many ways. There are the actual legal costs of obtaining a divorce judgment. If there are children involved, custody must be decided. If there are assets, they must be divided. All of these things usually involve billable legal fees.”

Illness or Injury

An injury or illness can precipitate bankruptcy in many cases, although this can be related to unaffordable medical debt and job loss or inability to work. Someone facing a serious illness or accident may be dealing with skyrocketing medical bills, difficulty working, months waiting for disability benefits or workers’ comp, and many out-of-pocket expenses like medication. Even with an emergency savings fund, a single serious accident can push many people into bankruptcy.

Student Loans

Student loan debt is a growing problem thanks to stagnant wages and ever-rising costs of higher education. The average student completes college with more than $29,000 in debt  this has resulted in a nation with more than $1 trillion in federal student loan debt. About 60% of people need to borrow to attend college per year with 71% of students graduating with a loan.

Student debt is notoriously difficult to discharge. The only way to discharge federal student loans in bankruptcy is proving an undue hardship. Still, bankruptcy can help make student debt more affordable by discharging other debts. Due to these restrictions, student loan debt is only directly responsible for 1% of all bankruptcies in the United States, or about 15,000 per year.

These are only a few of the most common reasons for personal bankruptcy. Medical expenses account for the greatest share of bankruptcy today, but there are many reasons someone can find themselves filing for bankruptcy protection, even after making all the right financial choices in life.

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