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Major Reasons Why People Might Go Bankrupt

The term bankruptcy is not new, actually it is something people hear about multiple times. However, many people do not actually understand the process of bankruptcy. Some do not even get how things go down in a bankruptcy court of law. This is usually a process whereby businesses and consumers are given the opportunity if repaying all the debt they might have under protection of a bankruptcy court. Once someone files for bankruptcy, this usually opens their finances to public inspection. People file for bankruptcy for various reasons and some say it can help prevent foreclosure. Below are some reasons why people might go bankrupt.

Divorce

Divorce doesn’t always turn out well for both parties. Divorces and separations can be quite costly. This can mean that one or both of the divorcees loses a big amount in terms of assets. This can also mean that one has to share the debt the partner has if at all they had a joint account at some point.
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Losing One’s Source of Income
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Losing a job is something that will obviously lead to lowered assets and depletion of savings. It can also come with extra expenses, which may overwhelm your financial situation. It can be worse if you don’t have a guarantee of restoring your financial position through a job or some other venture.

Medical Expenses

Research has shown that close to 62% of the bankruptcies that occur are because of medical expenses. It is very wrong to think that financial catastrophes only happen to uninsured people. Harvard University carried out a study indicating that 72% of those who have filed for bankruptcy because of medical costs had some kind of health insurance.

Credit Debt

When problems pile up and find yourself in a situation where you are incurring a lot of expenses you may end up experiencing this form of debt. These problems may range from illness and disability, emergency expenses or abrupt income reduction. Those individuals who struggle with irresponsible spending and poor budgeting may find themselves experiencing credit debt.

Loans by Students

Paying for school can be very expensive for any student. In the United States at least one percent of bankruptcy is as a result of students loans. In a year this is approximately 15,000 cases.

Reduced or Little Income

Employees may end up getting affected by salaries going down or budget cuts. Some employees may end up getting reduced bonuses and serious pay cuts whenever companies are cutting down expenses. This can bring about a huge financial strain for those employees working on other businesses and have families to take care of. Employees may then have to face bankruptcy, as an end result.

Unplanned Expenses

If you are not insured you may end up spending a lot of money if you experience any unexpected catastrophe. This may include things such as earthquakes, floods, and tornadoes, which may lead to the loss of a lot of property.