Bankruptcy is a legal process involving a business that cannot repay its outstanding debts for some reason. The value of the debtors’ assets is measured and used to repay some of the debt in liquid money. Bankruptcy offers the debtor a fresh start but will be declared credit unworthy in their business reports preventing them from borrowing in the coming years. Below are some of the causes of bankruptcy.
Diseases and injuries are unexpected occurrences that require a lot of money, and treatments of some chronic diseases like cancer need a lot of money that is always unavailable. Some people go to the extent of selling their property to cater to medical bills. Studies done by Harvard University show that medical bills and expenses are the leading cause of bankruptcy. A Los Angeles bankruptcy lawyer can assist you in filing a bankruptcy petition if you are facing a financial struggle due to medical bills and expenses.
Termination of a marriage
Not only is a divorce traumatic, but it leaves both parties financially challenged by causing a significant blow to the financial stability of both parties. This is caused by the cost incurred in paying legal fees, division of marital assets, paying for child support if there were children born in wedlock, and the cost of sustaining a household after the marriage dissolution. Hiring a legal representation like a divorce lawyer may also force some people to file for bankruptcy s their services are expensive. Not only is divorce.
Mismanagement of credit finances
Due to the availability of numerous forms of consumer debts, most companies tend to mismanage their finances and continue borrowing till they reach a point they cannot pay the debts. In the end, the company will declare bankruptcy as they cannot repay even the minimum amount of debt repayment and cannot obtain more funds from family and friends. College graduates are also affected by mismanagement of finances as they continually use credit loans without regarding the consequences, which causes problems when the grace periods near the end.
Unexpected job loss
With the current economy, job loss is not surprising, and people are encouraged to start serving early and avoid salary dependence. Job loss decreases income, forcing people to pay for expenses when financially unstable. During the coronavirus wave, reports show that many people filed for bankruptcy due to their job being laid off. The rate of bankruptcy keeps rising as the rate of unemployment increases significantly.
Excess and unnecessary use of money
It is essential to make a budget that is within your amount of income to avoid unnecessary money borrowing. The budget should limit how you use your income and allow you to make savings. Excess use of money mainly comes in when trying to impress some people or live like a particular class of people you cannot afford.
Avoid taking unnecessary loans to cater to extreme situations to avoid going bankrupt. Though bankruptcy makes you debt-free, it also closes the doors on you to take an emergency loan when in need s you are declared credit unworthy.