What Are The Causes Of Bankruptcy?
When an individual or business entity cannot clear their debts to the creditors, their legal status is known as bankrupt or bankruptcy – in most cases, this legal status is usually imposed through a court order and through the authorization of the debtor. There are however major things that can lead to bankruptcy. In the recent years, this has increased in so many parts of the U.S. Because of this, the congress has clearly addressed some issues to do with legislation that can make it harder for anyone to qualify for this status.
There are major reasons why a good number of people have gone bankrupt. In the first case, medical expenses have been perceived as the major cause of this condition; this especially happens to those who have not been insured. Where there is a medical emergency, it becomes difficult because there are no ways in which the funds can be raised to offset particular bills. Another major cause of bankruptcy is through the loss of a job. This could be through termination, lay off or simply resignation. This can be so devastating when it comes without any prior notice.
When one lacks the emergency fund, they will tend to rely on the credit cards to do every form of shopping as well as the clearing of the bills which can lead to disastrous returns because in the long run the interest rates will be much higher than expected. Those who lack jobs for a significant part of time are also likely to suffer; it is therefore very important to plan for everything beforehand so that such misfortunes don’t arise.
Bankruptcy can also arise when people are addicted to the use of credit cards. Those who have no control over their spending will particularly have a rough time. The bills will eventually go out of control and will make it impossible for the minimum payments that are supposed to be made. When the person cannot access the debt consolidation loan, then the sad fate of bankruptcy will crop in.
In some cases, the home equity loans can act as a remedy, especially for the unsecured debts, though people who are irresponsible in their payments can still have a foreclosure when they fail to make the payments on time. Luckily, bankruptcies & forclosures can still be deleted off of credit reports. Read this section on cbe group scam to find out more!
Marital dissolutions are also a major cause of bankruptcy; the fact that legal fees have to be paid is in itself a disastrous move as it will drain most of the finances. There are also some ongoing costs that are supposed to be catered for especially after the divorce and these will eventually result in a financial ruin. There are also other costs such as the upkeep of a child. There are some spouses who fail completely to support the needs as dictated in the agreement and this will eventually lead to a fall financially. This usually happens when a partner was not well prepared for divorce. There are times when property can be lost through theft unexpectedly. There are some other natural cases like floods, earthquakes, and it can be trickier when the owner is not insured and this will most likely lead to bankruptcy.
Natural occurrences are unavoidable, but again this is what makes it important for everyone to be insured because if not, there is no compensation for the same, and this means the victim will be at the mercy of the circumstances and therefore become an easy prey to bankruptcy. When proper financial planning is done, this problem can be managed; for anyone who contemplates the possibility of being declared bankrupt, its better to consult a financial planner or simply a credit counselor so that they can prepares them in good time before everything gets downhill. In many cases, bankruptcy has never been a choice to many, but if precautions are not taken in good time, the sad reality can happen to anyone anytime.
Its always better to have everything done in moderation especially when it comes to spending so that one can always plan in accordance to his or her financial capacity. This is the wisest thing that anyone needs to do. In many cases, there are ways to prevent bankruptcy and much information can be sought from the financial experts.