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What are the most common reasons for declaring bankruptcy?

Filing for Chapter 7 bankruptcy is different for everyone. Every bankruptcy case has its own unique circumstances. After all, there are many different factors that can prompt someone to go bankrupt.

Because bankruptcy is surrounded by such a powerful negative stigma, very few people openly discuss it. As a result, many people do not understand some of bankruptcy’s common causes. It can be helpful for debtors who are filing for Chapter 7 bankruptcy to know that they are not alone. In this post, we will take a look at five of the most common reasons for declaring bankruptcy.

Medical debt

Medical treatment can be incredibly expensive. Hospital stays, medication and other medical costs can quickly drown a patient in debt. Medical debt does not only affect people who are uninsured: A recent Harvard University study shows that 78 percent of people who filed bankruptcy because of medical debt had health insurance.

Loss of a job

The sudden loss of a job can devastate a family’s finances, especially for a household that relies on two incomes just to get by. Some people who are laid off or fired are given a severance package, but these usually only cover a few months’ pay. What’s more, some people also lose their work-sponsored insurance when they lose their job. Without the steady income, bills can pile up and become insurmountable.


Divorce is a tremendously expensive process. First, there are the divorce attorney’s legal fees. Then, there is the division of marital property. If the divorce settlement requires alimony or child support payments, the state may even garnish a spouse’s wages. In the wake of so many expenses, some divorcés turn to bankruptcy to absolve their debts.

Unanticipated costs

Life’s unavoidable expenses can quickly become overwhelming. Some families suffer a rare but major event like a fire or natural disaster that wipes out their finances. Others accumulate small debts little by little—perhaps because of school costs, home improvement issues or other expenses.

Excessive use of credit cards

When someone has excessive spending habits or relies on a credit card to pay their bills during a rough time, the financial consequences can be dire. When credit card debt gets out of control and the card holder is unable to pay it off, sometimes the only alternative is to declare Chapter 7 bankruptcy. Even if excessive credit card spending is the cause of someone’s bankruptcy, it is no reason to be ashamed: Bankruptcy is a fresh start, not a punishment.

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