A report, recently released by the federal government, shows that during the final half of 2016 on into the first six months of 2017, there was a 3 percent decline in bankruptcy filings among Americans. While that may sound good, as many as 772,594 people filed for bankruptcy during that same time frame. Three key reasons seems to dominate in terms of why they chose this option as a way of addressing their debt.
One reason Americans tend to turn to bankruptcy is because of mounting credit card debt. As if paying off your principal was not difficult enough, the speed with which interest rates increase if balances are not fully paid off every month can be alarming.
You may rack up $5,000 on a card and simply pay the minimum balance each month. If your interest rate is over 25 percent, then you could easily amass far more than the original amount owed simply by paying interest on your original balance each month. Just by making minimum payments and covering interest on $5,000 could take you as long as 15 years to do.
Another reason Americans find themselves ultimately filing for bankruptcy is because they lose their jobs. Although we've come a long ways in this country in recovering from the 2009 recession when unemployment rates reached 10 percent, just over 4 percent now are still jobless.
Most Americans don't have an emergency fund sitting around to cover their everyday expenses for as long as a year while they're seeking employment.
Perhaps just as bad is if you're an hourly worker who has your hours docked. For most, a 25 percent reduction in work hours can greatly impact an individual's ability to make ends meet.
Of all the different reasons Americans ultimately end up finding themselves filing for bankruptcy, the primary one is because of medical expenses.
In fact, one study published in the Atlantic showed that 50 percent of all medical debt is held by just 5 percent of the American population. Another study showed that those with cancer had twice the likelihood of filing for bankruptcy than their noncancer patient counterparts.
If you're struggling with debt and you're trying to make sense of the different options available to you to resolve it, then a Surprise, Arizona, bankruptcy attorney can advise you of just that.
Source: Madison.com, "5 Key Reasons People Go Bankrupt -- and How to Avoid Them," Selena Maranjian, Feb. 11, 2018