Bankruptcy is a word that no individual or business wants to hear, let alone, experience. However, sometimes issues arise beyond one’s control leaving them with no other choice but to employ an extreme solution. You should never feel shame if you do have to file for bankruptcy as it does provide some immediate relief. However, the best way to avoid financial devastation is to be prepared for the future.
This includes not only knowing what bankruptcy entails but having a good understanding of the main reasons people file. Below are three main life events that can result in having to file for bankruptcy.
Medical Expenses
According to recent research, leading experts estimate that 62% of bankruptcies are the result of overwhelming medical bills. Both the rising cost of health care and limited coverage provided by insurance agencies has resulted in insanely high medical bills that are often left unpaid.
The cost of healthcare in the US is extremely high. This is due to the high expense of incorporating the latest state-of-the-art technology, administrative costs, and the cost of pharmaceutical drugs and specialty services.
It is increasingly difficult for patients to find affordable healthcare with and without insurance. Insurance plans are confusing and complicated and often do not even cover specialists such as dentists, orthodontists, and cosmetic surgeons. In order for insurance to cover office visits, procedures, lab tests, treatment, and mediations, they have to be deemed medically necessary. This process in itself is costs time and money and any errors can lead to denied coverage for the patient and denied payment for the provider.
Often time in order for insurance to even kick in and cover treatment patients have to meet a deductible and pay a premium which can be extremely expensive as well. Unexpected injuries or illnesses, severe or acute, can end up costing thousands and thousands of dollars. These bills can easily wipe out all of your savings and retirement funds.
Job Loss
The second reason for bankruptcy is unemployment, which tends to lead to bankruptcy. This is true, especially when the economic cycle goes through a recessionary trend or a company starts to curb its expenses and lays off its employees by downsizing. Whether the reasons are termination, resignation, or a layoff, these factors can be traumatizing – mentally and psychologically. Losing a job can show the wrath of bankruptcy if a person does not have emergency funds to cover all of their expenses for at least six to twelve months.
Most companies are moving towards a cost-cutting strategy to manage their budgetary expenses. Consequently, and for most employees, this results in pay cuts, reduction in bonuses, or downsizing. They were subsequently leading employees towards bankruptcy.
One definitely cannot eradicate the probability of losing a job, but there are several actions that you can execute to reduce the likelihood of such odds. For instance, be a productive and valuable worker with a great attitude that your employment place does not want to lose. Not only this, but you can also add some new skills in the form of extra certifications or licenses. With time, you can improve your credentials and widen the scope of job eligibility for some other job.
Divorce
Divorce is a life-altering event that often carries significant financial implications. It is also considered a significant event that can lead to bankruptcy. Dissolving a marriage can exert immense financial strain on one or both partners. The expenses associated with divorce can be substantial, encompassing high legal fees and sometimes alimony payments. The division of assets, especially when it’s not straightforward, and disagreements over child custody arrangements can contribute to accumulating legal and court costs. Even in cases where a divorce is amicable, the transition from a dual-income household to a single-income one can be challenging, as it necessitates substantial adjustments in managing finances, budgeting, and maintaining one’s standard of living.
Conclusion
These top three life events are the most common causes of divorce. Instead of having to rely on loans and credit cards and incurring even more debt, it is smart to plan ahead. Safeguard your finances by establishing a savings plan and emergency fund. By managing your finances now you can greatly prepare for the future and avoid financial ruin.
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