Why Do People Go Bankrupt?

September 25, 2022

Financial difficulties can affect anyone at any time of their lives and, unless action is taken to address the situation, debts can quickly spiral out of control… and this can have dire consequences for all involved.

There are various ways in which debt can be managed, but the right course of action will depend on how far into debt you actually are. If you’re in serious financial trouble, for example, you may be considering bankruptcy as a solution to your problems.

It’s rare for just a single incident to be the sole cause of severe financial setbacks and it’s usually something unexpected, such as a job loss followed by diagnosis of a serious illness. Irresponsible money management can also be a factor, although this doesn’t tend to lead to bankruptcy by itself.

As such, there are numerous reasons why people feel compelled to file for bankruptcy. There are various advantages associated with doing so, with unsecured debts being written off and your creditors prevented from taking further legal action against you.

Creditors must also stop charging interest and demanding payment, so you will no longer receive any further contact from them.

However, there are also some risks associated with bankruptcy that it would be wise to be aware of if you are considering this as an option at this time. For example, assets like your vehicle or your home may be included and bankruptcy will show on your credit file for six years. The bankruptcy will also be recorded on a public register.

So what does lead to bankruptcy?

Job loss/loss of income

One very common reason for filing for bankruptcy is loss of income. There are many people out there who live paycheck to paycheck and this means that if something happens and the money is no longer coming in and/or there are no savings to fall back on, it can be very easy to find yourself in debt.

Mortgage affordability

When buying a house, it’s important to make sure that you only take on as much debt as you’re able to afford. If you’re tempted by a more expensive house and take out a bigger mortgage than is affordable, you could find yourself struggling with debt if you lose your job or suffer some other setback.

Divorce

Getting divorced is an expensive undertaking, with solicitors fees and court fees, as well as other expenses, mounting up very quickly. Turning to credit cards to cover the associated costs is not uncommon and it can also be difficult to adjust to having a single income.

Natural disasters

Unexpected expenses associated with natural disasters can lead to bankruptcy, which is why it is beneficial to have insurance in place for certain assets. With climate change increasing the likelihood of extreme weather events, protecting your home and other possessions can help keep bankruptcy at bay.

Looking for mortgage brokers that specialise in bankruptcy? Get in touch with us today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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