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The Myth of Irresponsibility: Why Most Individuals File for Bankruptcy

The good news on bankruptcy is that the number of filings in the United States went down in 2012. About 1.25 million people are expected to file this year for one of the versions of bankruptcy (Chapters 7, 11 or 13). This is down from 1.38 million in 2011.

The Great Recession that began in 2007 has certainly taught us about financial instability and uncertainty. What should now be abundantly clear is that filing for bankruptcy is not always about wanton, irresponsible spending. In fact, the statistics tell another story. Following are the three primary causes of personal bankruptcy in America:

  • Job loss – By mid-year 2012, more than five million Americans were out of work for six months or longer. Unemployment benefits might cover food and shelter, but soon other obligations (car payments, credit cards, tuition debt, etc.) can overwhelm savings.
  • Serious illness – The U.S. Centers for Disease Control and Prevention found in 2011 that one-fifth of American households had trouble paying for medical expenses. This isn’t surprising, given the cost of emergency procedures for the 40 million people who lack insurance: appendectomies are $15,850; angioplasties $19,900; heart bypass surgeries $56,000; C-sections $8,000; and prostatectomies $12,200 (all costs vary by region).
  • Divorce – A friendly, mediated divorce can cost about $7,000 but a contentious, litigated marriage dissolution can run around $50,000 (lawyers and mediators bill about $350 per hour in some cities). Meanwhile, housing expenses can double as two homes are established to replace one.

Because each of these debt-inducing events comes with emotional or physical pain, poor decision-making may also result. Anyone facing these problems should get sound financial advice early on. Sometimes filing bankruptcy is advised, and can be done with the help of a qualified bankruptcy attorney.

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