Whenever a person is going through financial turmoil and encounters bankruptcy, the first reason that people can surely think of is “poor financial management.” It can be one of the many reasons, but there are other various reasons as well that lead people towards bankruptcy. We will discuss three major reasons.
According to leading experts and researchers, it is estimated that 62% of bankruptcies are caused by mammoth medical bills. The reason for this is that healthcare is increasing on a daily basis because of incorporating the latest state-of-the-art technology for prognosis and accurate treatment. Furthermore, the population of patients is swelling on a daily basis. Considering the fact that general health insurance does not cover all types of treatment – such as dentistry, orthodontics, or cosmetic surgery – it is difficult to demarcate the line, which leads to confusion. Serious or acute injuries can cost thousands of dollars in medical expenses. Such types of bills can easily wipe out all of your savings and, most importantly, your retirement funds.
The second reason for bankruptcy is unemployment which has a tendency to lead towards bankruptcy. This is true, especially when the economic cycle is going through a recessionary trend or a company starts to curb their expenses and lays off their employees by downsizing. Whether the reasons are termination, resignation, or a layoff, these factors can be traumatizing – mentally and psychologically. Losing a job can show the wrath of bankruptcy if a person does not have emergency funds to cover all of their expenses for at least six to twelve months.
Most companies are moving towards a cost-cutting strategy to manage their budgetary expenses. Consequently, and for a majority of employees, this results in pay cuts, reduction in bonuses, or downsizing. Subsequently, leading employees towards bankruptcy.
One definitely cannot eradicate the probability of losing a job, but there are a number of actions that you can execute to reduce the probability of such odds. For instance, be a productive and valuable worker with a great attitude that your place of employment does not want to lose. Not only this, you can also add some extra skills in the form of extra certifications or licenses. With the passage of time, you can improve your credentials and widen the scope of job eligibility for some other kind of jobs as well.
Divorce is also considered a major cause of bankruptcy. Marital dissolution creates immense financial strains for both partners in multiple ways. The first things to consider are legal fees and alimony. For some, the expenses can be astronomical. Dividing the assets, proclamation of child support, and the ongoing cost of keeping two households separately can be more than one person can handle. Filing for divorce is an expensive proposition, even if both parties agree on their decisions.
There are countless reasons for having to face bankruptcy, however the above are the of the major causes. There are things you can do to safeguard your finances, no matter what happens. We recommend proper financial management and a good retirement and savings plan. These may not be guaranteed solutions for avoiding financial hardships, but will surely lower the probability of such instances with the worst outcomes.
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