Reasons Why People Become Bankrupt The term bankruptcy is not new, actually it is something people hear about multiple times. Nevertheless there are a number of people who do not understand the concept of bankruptcy. There are those who do not understand how things happen in a bankruptcy law court. In essence bankruptcy is where individuals or businesses are given the opportunity to pay the debts they owe under protection of bankruptcy court. Once someone files for bankruptcy, this usually opens their finances to public inspection. People may do this for a number of reasons; some even say that bankruptcy can help prevent foreclosure. Below are some reasons why people might go bankrupt. Separation and Divorce Divorce doesn’t always turn out well for both parties. Going through a separation or a divorce can be quite a costly affair. This can mean that one or both of the divorcees loses a big amount in terms of assets. In some cases it may also mean that one has to share the debt of the other individual if they had an account that was joint.
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Losing One’s Source of Income
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Losing a job is something that will obviously lead to lowered assets and depletion of savings. This may also bring with it some added expenses that may be problematic in your financial situation. It is even worse if you have no assurance that you may get a job or venture to restore your previous financial position. Health Expenses Research has shown that close to 62% of the bankruptcies that occur are because of medical expenses. It is very wrong to think that financial catastrophes only happen to uninsured people. Another study done by Harvard shows that close to three quarters of those that filed for bankruptcy had some kind of health insurance. Excess Use of Credit This form of debt can be brought about by a continuous pile up of problems. Some examples of these problems include emergency expenses, abrupt income reduction as well as illness and disability. People who struggle with poor budgeting and spending in most cases may end up experience credit debt. Student Loans One of the most expensive things one can do is paying for school. In the United States at least one percent of bankruptcy is as a result of students loans. This approximates to 15000 cases a year. Reduced or Little Income Employees may end up getting affected by salaries going down or budget cuts. Companies are cutting down their expenses and this may result to some employees experiencing reduced bonuses, and serious pay cuts. This can bring about a huge financial strain for those employees working on other businesses and have families to take care of. This may end up becoming bankruptcy. Unplanned Expenses If you are not insured you may end up spending a lot of money if you experience any unexpected catastrophe. This may include things such as earthquakes, floods, and tornadoes, which may lead to the loss of a lot of property.