Until you file for bankruptcy or know someone who files, it’s easy to hold a stereotypical idea about bankruptcy filers. You might think they’re young people who wildly spend too much money and now suffer the consequences of college and credit card debt. You might think of a low-income family who cannot make ends meet through minimum wage jobs. Or, you think of people who are financially reckless and irresponsible, reinforcing the idea that bankruptcy is something that people “deserve.”
Actually, the reality is quite different. Studies show that the top three causes of bankruptcy stem from events beyond a person’s control. Of course, many bankruptcies do involve some poor financial planning or life choices. But usually, the event that triggers a bankruptcy is harsh, powerful, and something that can happen to people who seem to be in good financial shape.
Here are the top three causes in order:
Our economy has suffered many shocks over the past few decades: A decline in manufacturing jobs. Sudden, abrupt accelerations in technology, quickly making many technical skills obsolete. Offshoring and outsourcing that reduces the number of available jobs. Growth in service jobs that pay very little, but offer the only hope of employment for people booted out of old jobs. Both the Great Recession and its aftereffects since 2008 have eliminated millions of jobs and reshaped the job landscape.
This means we’re often at the mercy of the economy. It can either take a long time to find another job, or the economic situation forces people to take significantly lower-paying jobs in an attempt to get any income flowing in. If they own a house and raise a family, then those mortgage payments and child-related expenses remain high even as income disappears. This kind of situation can strike at any time. And if it strikes at the wrong time and a person’s unemployment lasts for many months or years, then it increases the chance that you’ll file for bankruptcy.
A serious illness, disease, or medical condition is something completely out of our control and does several things to people financially:
- Introduces ongoing doctor and hospital bills that, even with insurance, can run into the hundreds and thousands of dollars.
- Takes time away from a job or other ways of earning money as a person takes care of themselves, a spouse, a children, or other relatives.
- Hurts the ability to pay your regular bills on time, save money, and build credit.
Even when people have health insurance, medical bills for a serious health condition can financially devastate a household and increase the chance of filing for bankruptcy.
In a marriage, it’s often the case that one spouse relies more on the other financially. This could be a traditional marriage where one spouse earns the money while the other stays at home. Or, it could be a married couple riding out a troubled economy with only one spouse working or supporting the other’s goals, such as going back to college.
A divorce can be hard financially on either spouse. For the spouse who didn’t have a job or worked irregularly, it may be hard to sustain a certain standard of living with the work they find (or don’t find) available on their own. And even for the spouse who had a job, their alimony and child support payments may be high. If they lose their job, they still have to make those payments. In either case, each spouse might more likely file for bankruptcy when they can’t reconcile their former and current standard of living.
As a final note, this blog post uses facts and statistics to show that the profile of the most common bankruptcy filer is not who you think. A person filing for bankruptcy would mostly likely be:
- Over 35 years old
- A woman
- A Caucasian
- Holds a college degree
- Earns less than $30,000 a year
- Holds a job
You never know when you might need to consider bankruptcy. If you’ve experienced any of the life events above and feel like bankruptcy might be an option, contact us for a free consultation.