Top Ten Causes of Bankruptcy

Or… Five Causes and Five Effects

iStock_000015661523MediumThere are many personal and individual reasons that people file bankruptcy. Closer examination shows that they fall into ten major categories, ten reasons that cover almost all bankruptcies. The top 5 causes of bankruptcy cover 95% of all cases of personal or individual bankruptcy. The next five are frequently cited reasons for filing, but they are typically not the leading cause. We include them, because they are the most important reason for a few, and they are the straw that breaks the camel’s back for many others who file for bankruptcy.

#1 Medical Expenses (40%)

Studies indicate 40% of personal bankruptcies occur as a result of medical expense following major illness or injury. Approximately three-fourths of those who filed had insurance.

#2 Job Loss (24%)

More Americans are unemployed and out of the work force than any time since the Great Depression. As you might expect, unemployment is a major factor in the decision to file bankruptcy.

#3 Uncontrolled Spending (14%)

Spending too much, using too much credit, and getting over extended is another leading cause of bankruptcy. It’s easy to run up credit card bills, get into large mortgages, and big car payments. Sometimes there are other issues connected to this; things like gambling, alcohol abuse, and addiction. It can be as simple as counting too much on future income increases, and spending your bonus or raise before you have it in hand. Many purchases might not seem like a luxury at the time, but plenty of those who get into financial trouble can look back on past spending and see a pattern of mistakes.

#4 Divorce / Death of Spouse (9%)

The costs of divorce are high. In addition to creating the expense of two households, there are all the other costs: attorney’s fees, court costs, child support, alimony and others that are hard to pinpoint, but never fail to show up.

#5 Unforeseen and Unavoidable Accidents and Disasters (7%)

Even if you are not injured, an accident can be expensive. Disasters such as fires, earthquakes, floods, tornados and hurricanes are unpredictable. They can wreck lives, homes, and other things. One of the most certain effects is a big burden on finances.

#6 Foreclosure (1.0+ %)

For most of us, the purchase of a home involves the largest expense we will ever have. It may take years to reach a place where we can afford to do it. To protect it, some will try to cut down and reorganize debt by filing for bankruptcy.

#7 Little or No Financial Planning (1.0+ %)

Financial Planning is a factor in many bankruptcies. In most cases this is a catch all for a combination of many factors, but occasionally it is the leading cause.

#8 Loss of Utilities (1.0+ %)

In some cases people will fight long and hard to avoid bankruptcy. By the time they file they need bankruptcy protection to keep the lights on and their home warm.

#9 Student Loans (1.0+ %)

Most student loans cannot be eliminated through bankruptcy. However, the burden they put on the budget can be the biggest factor in a decision to file.

#10 Repossession (1.0+ %)

When faced with repossession, many will need the protection of bankruptcy to keep the automobile they drive to work. Many will resort to bankruptcy to prevent repossession of autos and other personal property.


I read this along with some of the other info at It saved me a lot of time. I focused my attention on things that would help me, and it let me ignore things that might have wasted a lot of my time.

This info saved me a lot of time

Monica, Chapter 7

Look familiar?

Why you filed bankruptcy can be very important to the steps you take to recover from it. It only makes sense. For example, if you filed bankruptcy because of unemployment, you will have different issues than the person who files because of medical bills.

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