When people think of the reasons for bankruptcy, they often focus on spending issues or the accumulation of new debt. For instance, they assume that the person filing has spent more than they can afford on their credit cards. Additionally, medical debt does often lead to bankruptcy, so it could be that someone suddenly owes medical bills after an emergency that they can’t afford.
But it’s important to remember that one of the top reasons for bankruptcy is simply a loss of income. In many cases, this means that a person loses their job entirely and has no income, perhaps because they were fired or laid off. In other cases, they just see an income reduction. This could happen to a business owner during a recession, for example, or to a worker who gets a new job that pays less than they were previously earning.
Living paycheck to paycheck
The reason this often leads to bankruptcy is that many Americans are living paycheck to paycheck. Roughly 50% of them, if asked, would guess that they fit into this bracket. They feel that they are spending most of their money every month.
Some studies claim that roughly 30% of Americans spend 90% of their income, for example. This income is spent on necessities, not luxury goods. Additionally, 26% of American households spend even more, reaching at least 95%.
In other words, these households may not even be able to get through a month without a steady income. People are dependent on keeping their jobs, and even a slight reduction in pay can suddenly make all their bills unaffordable.
If you find yourself in this position, you are likely looking for financial solutions to work toward a positive future. Be sure to consider bankruptcy and your other legal options.