Top 5 Reasons Why People Go Bankrupt
by Mark P. Cussen
Monday, March 22, 2010
provided by http://finance.yahoo.com/banking-budgeting/article/109143/top-5-reasons-why-people-go-bankrupt?mod=bb-checking_savings
The bankruptcy statistics in America are alarming. The past few decades have seen a dramatic rise in the number of people that are unable to pay off their debts, and Congress has recently addressed the issue with legislation that makes it harder to qualify for this status. Following is a list of the most common causes of bankruptcy in America today.
1. Medical Expenses
A study done at Harvard University indicates that this is the biggest cause of bankruptcy, representing 62% of all personal bankruptcies. One of the interesting caveats of this study shows that 78% of filers had some form of health insurance, thus bucking the myth that medical bills affect only the uninsured.
Rare or serious diseases or injuries can easily result in hundreds of thousands of dollars in medical bills - bills that can quickly wipe out savings and retirement accounts, college education funds and home equity. Once these have been exhausted, bankruptcy may be the only shelter left, regardless of whether the patient or his or her family was able to apply health coverage to a portion of the bill or not.
2. Job Loss
Whether due to layoff, termination or resignation, the loss of income from a job can be equally devastating. Some are lucky enough to receive severance packages, but many find pink slips on their desks or lockers with little or no prior notice. Not having an emergency fund to draw from only worsens this situation, and using credit cards to pay bills can be disastrous.
The loss of insurance coverage and the cost of COBRA insurance also drain the job seeker's already limited resources. Those who are unable to find similar gainful employment for an extended period of time may not be able to recover from the lack of income in time to keep the creditors at bay.
3. Poor/Excess Use of Credit
Some people simply can't control their spending. Credit card bills, installment debt, car and other loan payments can eventually spiral out of control, until finally the borrower is unable to make even the minimum payment on each type of debt. If the borrower cannot access funds from friends or family or otherwise obtain a debt-consolidation loan, then bankruptcy is usually the inevitable alternative.
Statistics indicate that most debt-consolidation plans fail for various reasons, and usually only delay filing for most participants. Although home-equity loans can be a good remedy for unsecured debt in some cases, once it is exhausted, irresponsible borrowers can face foreclosure on their homes if they are unable to make this payment as well.
4. Divorce/Separation
Marital dissolutions create tremendous financial strain on both partners in several ways. First come the legal fees, which can be astronomical in some cases, followed by a division of marital assets, decree of child support and/or alimony, and finally the ongoing cost of keeping up two separate households after the split. The legal costs alone are enough to force some to file, while wage garnishments to cover back child support or alimony can strip others of the ability to pay the rest of their bills. Spouses who fail to pay the support dictated in the agreement often leave the other completely destitute.
5. Unexpected Expenses
Loss of property due to theft or casualty, such as earthquakes, floods or tornadoes for which the owner is not insured can force some into bankruptcy. Many homeowners are likely unaware that they must take out separate coverage for certain events such as earthquakes. Those who do not have coverage for this type of peril can face the loss of not only their homes but most or all of their possessions as well. Not only must they then pay to replace these items, but they must also find immediate food and shelter in the meantime. Furthermore, those who lose their wardrobes in such a catastrophe may not be able to dress appropriately for their work, which could cost them their jobs.
The Bottom Line
There are many reasons why taxpayers are forced-or choose-to declare bankruptcy. But many times, common sense, sound financial planning and preparation for the future can head off this problem before it becomes inevitable. Those who are contemplating this possibility should seek a credit counselor or financial planner before choosing this alternative.
Still feeling uninformed? Check out last week's Water Cooler Finance to see what's been happening in financial news.
Yahoo Finance. Cussen, Mark P. March 22, 2010. Yahoo, Inc. http://finance.yahoo.com/banking-budgeting/article/109143/top-5-reasons-why-people-go-bankrupt?mod=bb-checking_savings
A new chapter in bankruptcyPersonal filings are slowly creeping up
Philadelphia Business Journal - by Jeff Blumenthal Staff Writer
Bankruptcy lawyer Paul Winterhalter says he’s seeing more well-to-do filers.
View Larger With the U.S. economy experiencing its worst downturn in more than half a century, one would think that personal bankruptcy filings would be through the roof. But that has not been the case. Filings are just beginning to edge upward to levels seen before the enactment of a bankruptcy law in 2005 that made it more onerous for consumers to file.
Local consumer bankruptcy lawyers said filings have not skyrocketed — though they have increased in each of the past three years — because of a combination of factors. Chief among them are the more stringent law, which makes it harder to file, and new mortgage remodification programs introduced in response to the recession, which have given many would-be filers a reprieve.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made requirements for bankruptcy protection more stringent. People with above-average income, as determined by a standard “means test,” were barred from filing for Chapter 7 protection, where debts may be wiped out entirely. Instead, they have to file more restrictive Chapter 13 bankruptcies, which require a five-year repayment plan. Filers also are required to get professional credit counseling before filing and credit education afterwards.
In the decade leading up to the 2005 law’s enactment, annual U.S. consumer bankruptcies hovered between 1.1 million and 1.6 million filings. Those numbers rose to 2 million in 2005 as people rushed to file before the law was enacted that fall. With so many people having already filed, there was a 70 percent drop off in 2006 consumer filings (597,965). Then, with the mortgage crisis hitting in 2007 followed by the 2008 stock market collapse, filings began to jump again — by 40 percent in 2007, 33 percent in 2008 and 32 percent last year. But the 1.4 million filings in 2009 was still only on par with the numbers prior to the law’s enactment.
Early Filing Could Help Save Personal Assets
http://www.mlive.com/news/kalamazoo/index.ssf/2010/01/kalamazoo_attorneys_encourage.html
April 2, 2010
March Sees Highest Bankruptcy Filings Since 2005
By Robin Cassella
FOXBusiness
Personal bankruptcy filings in March were the highest since federal bankruptcy laws were reorganized in 2005, according to a study released by Automated Access to Court Electronic Records (AACER: undefined, undefined, undefined%),
The 158,141 bankruptcies filed in March was a 20% increase from last March, and a 35% increase from February.
March’s filings were the highest since Oct. 2009, which had been the highest since reforms to the U.S. Bankruptcy Code were enacted in 2005.
About three-quarters of the petitions were filed under Chapter 7, which allows consumers to get a new start on their finances. Others were filed under Chapter 13, which allows consumers to discharge some debts. A total of 1,323 were filed under Chapter 11, which businesses usually use.
Bankruptcy filings since 2005 for individuals rose 32% to 1.41 million, and for businesses rose 40% to nearly 61,000.
“When you experience job losses, a tightening of and increase in the credit costs and rising interest rates on credit cards, people start feeling a squeeze," said Karen Gross, president of Southern Vermont College in Bennington and director of the Coalition for Debtor Education, in an article for Reuters. "You start seeing bankruptcy rates increase and that's exactly what we're seeing now."
However, the busiest three-month period for filings remains the fourth quarter of 2005 when 667,000 petitions were filed.
June 10, 2010
Obama and Economics: Intellectually Clueless
http://www.jewishworldreview.com/cols/elder061010.php3
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