Until you file for bankruptcy or know someone who does, it’s easy to hold stereotypical views about bankruptcy filers. You might think they’re young people who have spent wildly and now suffer the consequences of college and credit card debt. Or perhaps you imagine a low-income family unable to make ends meet with minimum-wage jobs. There’s also a perception that those who file for bankruptcy are financially reckless and irresponsible, reinforcing the notion that bankruptcy is something they “deserve.”
The Reality of Bankruptcy Stereotypes
In reality, studies show that the primary causes of bankruptcy are often beyond an individual’s control. While some bankruptcies do involve poor financial planning, many are triggered by harsh and unforeseen events. Here are the top three causes:
Job Loss: An Economic Reality
The job market is volatile, and economic downturns can lead to sudden unemployment. Factors such as manufacturing declines, technological advancements, offshoring, and outsourcing have dramatically reshaped the job landscape. The Great Recession and subsequent economic challenges have led to prolonged job searches and lower-paying employment options. When income drops but expenses like mortgage payments remain constant, many find themselves turning to bankruptcy as a last resort.
A 2023 report from the Bureau of Labor Statistics highlighted that despite economic recovery, many individuals still face long-term unemployment, leading to severe financial distress. This underscores how job loss remains a significant factor contributing to bankruptcy.
Medical Bills: A Health Crisis
Medical expenses are a leading cause of bankruptcy in the United States. Even with insurance, the costs associated with serious illnesses or chronic conditions can be overwhelming. High medical bills, combined with the inability to work due to health issues, create a financial burden that many cannot overcome without declaring bankruptcy.
According to a study by the American Journal of Public Health, nearly 66.5% of all bankruptcies are tied to medical issues—either high care costs or time out of work. This statistic highlights the precarious situation many face when dealing with health crises.
Divorce: Financial and Emotional Strain
Divorce can have severe financial implications for both parties involved. Often, one spouse may have relied on the other for financial support. Post-divorce, both individuals face the challenge of maintaining their previous standard of living on a single income. Alimony and child support payments further strain finances, sometimes leading to bankruptcy.
A recent analysis by the Institute for Family Studies found that divorced women, in particular, are more likely to experience economic hardship post-divorce, with a significant number resorting to bankruptcy to manage their debts.
Common Bankruptcy Filers
Contrary to popular bankruptcy stereotypes, the profile of a typical bankruptcy filer may surprise you. Most often, they are:
- Over 35 years old
- Female
- Caucasian
- Hold a college degree
- Earn less than $30,000 a year
- Employed
- Married
Why Stereotypes Persist
Bankruptcy stereotypes persist due to a lack of understanding and awareness about the true causes. Many people mistakenly believe that bankruptcy results from financial irresponsibility when, in fact, it often stems from unavoidable and uncontrollable life events. Media portrayals and societal attitudes also contribute to these misconceptions, reinforcing the stigma around bankruptcy.
Conclusion
Bankruptcy is often a result of circumstances beyond one’s control, not financial irresponsibility. If you’ve experienced any of the situations described above and feel overwhelmed by your financial situation, consider seeking professional advice. Contact us for a free consultation to explore your options. We have offices in the following locations:
