America’s bankruptcy rates seem to be higher than ever. In fact, according to recent US bankruptcy court statistics, more than 1.5 million people file for personal bankruptcy every year. So what’s behind all of this debt, exactly? Here is a look at the five leading causes of personal bankruptcy in the US.
Medical Bills
Recent studies indicate that unexpected medical expenses could be behind as many as 42% of personal bankruptcy cases. Even those who receive healthcare through their employers aren’t immune to high medical bills, as an out-of-network care provider can enter the picture and end up billing you for thousands of dollars. A 2014 article from the New York Times, for example, told the story of a man whose herniated-disk surgery was fully covered by insurance—except for the unexpected $117,000 for receiving care from an out-of-network “assistant surgeon.” NerdWallet, meanwhile, reported in early 2014 that Americans pay three times more for medical debt than they do for bank and credit card debt combined.
Job Loss
Job loss accounts for almost a quarter of bankruptcy cases. And with millions of Americans facing unemployment today, our chances of seeing bankruptcy evolve out of job loss are higher than ever. Unexpected layoff, termination, and resignation are all big reasons as to why it’s important to build and maintain an emergency fund.
Uncontrolled Spending
Then, of course, there is uncontrolled spending. Credit card bills, expensive car payments, and high mortgages all contribute to personal bankruptcy. These things can slowly chip away at your savings account until eventually you are unable to meet even the minimum payments.
Divorce
Divorce accounts for about 8% of personal bankruptcy cases. What makes it such a high potential trigger for bankruptcy? For one, you’re looking at keeping up with the ongoing costs of two separate households after a divorce. Then, there is also child support and alimony to consider. Finally, if you aren’t careful about choosing an attorney, legal fees could end up being much higher than you expected.
Unexpected Disasters
The leading cause of bankruptcy, medical bills, is just one example of an unexpected major expense. Yet there are many other potential expenses that could take you from comfortable living to near-bankruptcy when you don’t take the proper precautions. Natural disasters in particular can lead to heavy expenses, especially when you don’t have adequate insurance for your home and possessions. In addition, the need to find adequate food and shelter in the meantime as you recover from a natural disaster could cost you significantly as well.