People and organizations face financial problems every now and then. Some are able to find solutions in a short period of time while the others may not be fortunate enough to easily settle their obligations causing them to go into debt. When these debts are not settled, the end result would either be foreclosure of the property or business or bankruptcy.
In the U.S., bankruptcies may have risen in recent years but the numbers are fluctuating. In March 2015, bankruptcy filings dropped 12 percent compared to previous years, according to the Administrative Office of the U.S. Courts. This is for both business and non-business filings. For business organizations, the figure was down from 37,552 in 2014 to 26,130 in 2015. For non-business filings, the numbers also went down from more than 1.132 million in 2014 to just over a million in 2015.
This year 2016, however, the figure went up to 25,227 companies in the second quarter from the first quarter’s 24,797. For a period of three decades from 1980-2016, the number of bankruptcies in the country was at its peak in 1987 at 82,446 while it recorded its lowest level in 2006 with 19,695. Insolvent corporations account for most of the bankruptcies as they fail to repay their debts to creditors and continue with their business.
Major Causes of Bankruptcies
A Hufftington Post report noted that almost 97 percent of bankruptcy filings are made by individuals and not business companies.
Medical bills. Research has shown that medical bills are the major cause of bankruptcies among people in the U.S. each year with three out of every five filings. This outpaces filings due to unpaid mortgages and credit card bills. A study done by Harvard University also confirmed this stating that an estimated 62 percent of personal bankruptcies is caused by medical expense. It noted, however, that 72 percent of those who filed had some form of health insurance.
In 2013, nearly two million people were predicted to face unpaid medical bills. In addition, almost 56 million adults were noted to continue struggling with bills related to healthcare. The problem is also attributed to the high cost of insurance plan that people are finding hard to pay using their monthly income.
Job loss. People who lost their jobs are also prone to facing huge financial debts, said Simon Resnik, a Chapter 13 bankruptcy lawyer. This is despite receiving a severance pay from their employers. With no steady income to depend on, these unemployed people are finding it difficult to make both ends meet plus face extra expenses including the COBRA insurance, Resnik added.
Credit card debt. The misuse and abuse of credit cards is also among the main causes of a person’s debt. The unpaid balance can pile up all the more such as during illness and disability, emergency situations and unexpected reduction in one’s income.
Divorce. Separating from your spouse can be devastating and can lead to financial woes. The legal process alone can be quite expensive. This can happen if the other spouse is not employed and had been dependent on his or her partner. Debt can also result if alimony is not provided and the other partner fails to find a job to support himself or herself and their kids, if any. What’s worse is you will be faced to take on a portion of your partner’s debt if you co-signed or opened joint accounts with them.
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