More than 50,000 people file for bankruptcy each year in Texas, according to the American Bankruptcy Institute. Other than a shaky economy, what are the causes of bankruptcy?
Causes of Bankruptcy: Five Life Events
Our firm has handled many bankruptcy cases, and there are common causes of bankruptcy that plague many of our clients. If your particular bankruptcy case isn’t addressed here, you can read more in the free Texas bankruptcy guide.
Five of the most common life circumstances that we have seen lead to financial trouble include:
- Job Loss – Layoffs and reductions in working hours can cause financial ruin in a heartbeat, particularly for those with no savings to tide them over. When a family loses incoming money, they are often forced to survive using credit cards and struggle to keep their homes.
- Divorce – Couples accustomed to two incomes now only have a single income, legal fees may exceptionally high, and child support and alimony can be hard to pay (or the support can be too little to help pay bills for recipient spouses.)
- Illness – It is rare that one plans for a serious illness. Those diagnosed with cancer, for instance, are 2.5 times more likely to file bankruptcy than those without, reports CBS News.
- Change in Living Situation – Teenagers leaving home for the first time and folks entering retirement often struggle with new budgets. Moving residences is also commonly listed as one of the most stressful and expensive events in one’s life.
- Business Loss – When an entrepreneur’s venture doesn’t post a profit for more than one year (as is the case with many new small business endeavours), it quickly can consume any personal savings.
Consumer Irresponsibility is Still the Major Contributing Factor
While unforeseen life events can and do often lead to bankruptcy, poor money management and poor spending habits are still by far the primary root causes of bankruptcy.
The University of California at Davis (UCD) reports that excessive consumption contributes more to personal bankruptcy filings than any other cause. UCD shares that “debt accounted for more than 50 percent of recent bankruptcies, while medical problems caused just 5 percent, and unemployment led to only 13 percent…bankrupt households have bigger mortgages, car loans and credit card balances than solvent ones, but make less than half as much money.”
This is why proper planning, good money management and honest stewardship are essential to financial wellbeing. The bankruptcy system should be used as a protection and last resort. The UC Davis study revealed that some bankrupted parties had in fact planned for it, thinking bankruptcy could be used as a “get out of jail free” card. For these reasons, it is more difficult than ever to successfully file for bankruptcy.
Our Bankruptcy Attorneys Are Here to Help in Dallas
If an unplanned life event has led to insurmountable debt, we invite you to contact our bankruptcy lawyers at Warren & Migliaccio to discuss your options. We serve Dallas and surrounding areas and will be happy to look over your situation and determine if any of the causes of bankruptcy may have contributed to your situation. Call us today at 888-584-9614 for a free consultation and to learn if bankruptcy might be practicable for you.
