Bankruptcy is complicated and often scary for many people and businesses. Knowing why bankruptcy happens can help you spot warning signs and take steps to manage your money better. These common causes can help us understand how to handle money problems and avoid bankruptcy.
7 common causes
The most common debts that lead to bankruptcy include:
- Medical bills: Surprise medical costs are a top cause of bankruptcy. Even with insurance, significant illnesses or injuries can cost too much.
- Credit card debt: High-interest credit card debt can grow fast, especially if you only pay the minimum.
- Mortgage debt: Missing house payments can lead to losing your home, and many people file for bankruptcy to keep it.
- Student loans: While debt is burdensome to erase in bankruptcy, significant debt can push people to seek help.
- Personal loans: Loans without collateral, like payday loans, can accumulate quickly and become too much to handle.
- Business debt: Small business owners may borrow a lot to keep their business going, which can lead to personal bankruptcy if the business fails.
- Tax debt: While you cannot erase all tax debts in bankruptcy, big tax bills can add to money stress.
Knowing these common debt types can help you plan and manage money to avoid needing bankruptcy.
Starting the process
While bankruptcy can give a fresh start to those with too much debt, knowing why money problems happen is vital. However, if you are already deep in debt and are considering filing, getting legal advice can significantly help. A good bankruptcy lawyer can guide and educate you and help you work for the best outcome.