While overwhelming debt is the primary cause of bankruptcy, what leads up to it varies from one person to the next. Every case is unique, but there are a number of common causes.
Frequently, the reasons for money difficulties stem from major incidents.
Health care costs
A report from CNBC cites medical issues as the cause of personal bankruptcy in about 66% of cases. This amounts to about 530,000 Americans filing for bankruptcy each year due to a medical concern. In many cases, the individual or family does not have health insurance, and the cost of treatment becomes too much of a burden. In other cases, the illness puts a person out of work, making it impossible to pay the bills.
One recent study suggests that the Affordable Care Act remains ineffective in reducing bankruptcies due to medical costs, despite gains in coverage and access to care. This is true because many of the offerings in the ACA only provide partial coverage for patients, still leaving hefty bills to pay after a serious illness.
Other top reasons
While Business Insider also cites medical reasons as the primary driver of bankruptcies, it also lists five other top causes of serious money concerns:
- Holding unaffordable mortgages
- Living above one’s means
- Helping to support friends or relatives
- Paying hefty student loans
- Going through a divorce or separation
In many cases, individuals fall victim to unexpected events such as the loss of a job that make recovery impossible. Filing bankruptcy allows them to write off certain debts and begin the process of regaining financial control.
