Top 4 Causes Of Unplanned Bankruptcy
Bankruptcy often strikes unexpectedly, leaving individuals and families scrambling to regain their financial footing. At Loris Law Firm in Mobile, Alabama, we see firsthand the challenges faced by those contemplating a reset through Chapter 7 or Chapter 13 bankruptcy. While some people might associate bankruptcy with reckless spending, many situations can lead to unplanned bankruptcy. If you’re facing financial difficulties, understanding these common causes can help you make informed decisions about your future.
Top 1: Medical Expenses
Medical expenses are the leading cause of unplanned bankruptcy in the United States. A study by the American Journal of Public Health found that 66.5% of all bankruptcies were tied to medical issues—either because of high costs for care or time out of work. An unexpected health crisis can result in staggering medical bills that many individuals and families are unprepared for. Even those with health insurance often face significant out-of-pocket expenses for treatments, surgeries, and medications, which can quickly deplete savings.
In Alabama, the burden of medical debt is particularly acute, with many residents facing higher-than-average healthcare expenses. This financial strain is compounded by the state’s specific challenges, such as lower median incomes and higher rates of uninsured individuals compared to national averages. If you’re struggling with medical debt, remember that bankruptcy may offer a fresh start. Each situation is unique, and consulting with knowledgeable bankruptcy lawyers in Mobile, AL, can provide the tailored advice and support you need.
Top 2: Job Loss
Job loss is a significant factor leading to personal bankruptcy, second only to medical expenses in its impact. The abrupt loss of a steady income can make it extremely difficult to manage basic expenses such as housing, utilities, and food. A Bureau of Labor Statistics survey reveals that around 40% of unemployed individuals resort to credit cards for daily living expenses, significantly increasing their debt levels. The Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2020 highlighted that 37% of adults would struggle to cover a $400 emergency expense without borrowing.
This reliance on credit can lead to an unsustainable accumulation of high-interest debt, pushing many towards financial disaster. As unemployment prolongs, the risk of this debt becoming unmanageable rises, often necessitating bankruptcy as a last resort. For those affected, bankruptcy can provide a necessary financial reset, allowing for a fresh start free from overwhelming debt burdens. Understanding and preparing for the financial impact of job loss is crucial in maintaining economic stability and avoiding the path to bankruptcy.
Top 3: Excessive Use of Credit
Credit cards are a double-edged sword. While they offer convenience and immediate relief for financial needs, excessive and uncontrolled use can lead to high-interest debt that is difficult to manage. For many, this spirals out of control, leading to minimum payments that barely cover the interest, never reducing the principal amount owed. Bankruptcy provides a pathway to eliminate such debts and start anew. Understanding your legal options is critical, and guidance from seasoned bankruptcy lawyers in Mobile, AL, can make all the difference.
Top 4: Divorce or Separation
Divorce or separation not only takes an emotional toll but can also lead to significant financial strain. Legal fees, division of assets, alimony, and child support can severely impact one’s finances. Often, one or both parties may find it difficult to keep up with the financial demands post-divorce, pushing them towards bankruptcy. Our bankruptcy attorneys at Loris Law Firm can guide you through the financial restructuring process, offering relief through legal avenues like Chapter 13 bankruptcy.
Explore Your Options with Loris Bankruptcy Law Firm
If unplanned bankruptcy seems imminent, remember, you are not alone. We are here to help you navigate through these tough times with dignity and hope for a brighter financial future. Contact us today and take the first step towards resolving your financial challenges. Together, we can find the best path forward tailored to your unique situation.