Whenever a person is going through financial turmoil and encounters bankruptcy, most people automatically believe it is poor money management. Though poor money management can be a reason for bankruptcy, it is often due to issues beyond the control of the person filing it.
Because bankruptcy is associated with an adverse financial profile, people do not realize it is viable when financial hardships become too overwhelming. Outside of poor money management, here are three of the most common reasons for bankruptcy.
Medical Expenses
According to leading experts, overwhelming medical bills are estimated to cause 62% of bankruptcies. This statistic is because healthcare is increasing daily because of incorporating the latest state-of-the-art technology for prognosis and accurate treatment.
Furthermore, the population of patients is swelling daily. Because general health insurance does not cover all types of treatment – such as dentistry, orthodontics, or cosmetic surgery – it is difficult to distinguish the line, which leads to costly medical bills.
Severe or acute injuries can cost thousands of dollars in medical expenses. These bills can quickly wipe out your savings and, most importantly, your retirement funds. Medical burdens that can put a person into bankruptcy are largely unavoidable, and filing for bankruptcy may be the best choice to get over these burdens.
Job Loss
The second reason for bankruptcy outside of poor money management is unemployment. There can be many reasons a person becomes unemployed. In some cases, the job loss is caused by the economy going through a recessionary period, causing a company to start curbing their expenses and lay off their employees by downsizing.
Whether the reason for unemployment is termination, resignation, or a layoff, these factors can be traumatizing. Losing a job can lead to bankruptcy if a person does not have emergency funds to cover their expenses for at least six to twelve months or cannot file for unemployment benefits.
Most companies are moving towards a cost-cutting strategy to manage their budgetary expenses. Consequently, and for most employees, this results in pay cuts, reductions in bonuses, or downsizing.
Subsequently, these cutbacks can lead employees to bankruptcy. While this is true, one cannot avoid the possibility of losing a job. However, you can take several actions to lessen the chances of filing for bankruptcy if you become unemployed.
You can make yourself a productive and valuable worker with a great attitude that your place of employment does not want to lose. You can also add extra skills through training and obtaining specialty certifications or licenses.
With time, you can improve your credentials and widen the scope of job eligibility for other career choices. This expansion of career choices will give you options should you find yourself unemployed for any reason.
Divorce
Divorce is also a common cause of bankruptcy outside of poor money management. Marital dissolution creates immense financial strains for both partners in multiple ways. The first things to consider are legal fees and alimony.
For some, the expenses can be astronomical. Dividing the assets, proclamation of child support, and the ongoing cost of keeping two households can be more than one person can handle. Filing for divorce is expensive, even if both parties agree on their decisions.
Though many divorces can end amicably, a good portion of them can leave one or both parties financially devastated. This financial destruction can lead to bankruptcy if there are no contingency plans.
Conclusion
There are countless reasons for having to face bankruptcy. However, the above is one of the significant causes. There are things you can do to safeguard your finances, no matter what happens. You should maintain proper financial management and a good retirement and savings plan. These may not be guaranteed solutions for avoiding financial hardships, but they will undoubtedly lower the probability of such instances with the worst outcomes.
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