Top 7 Reasons Why People File Bankruptcy in New York
The number of bankruptcy filings in the United States has steadily increased over the last century, with all-time highs in 2005, when more than 2 million cases were started. In that year, one out of every 55 households filed for bankruptcy.
While bankruptcy filings have decreased since then, roughly 1.5 million people still file bankruptcy every year. While some people blame excess spending, there are actually many situations that can make a person go bankrupt.
Let’s explore the top seven reasons why people have to file bankruptcy in NYC.
Medical Expenses
A study published in the American Journal of Public Health found that 66.5 percent of bankruptcies in the U.S. were due to medical issues. Even though many Americans have health insurance, they can still be faced with high deductibles and copays. These expenses, coupled with the loss of a job due to an illness or injury, can easily make someone bankrupt.
Job Loss
Whether it’s due to a layoff or resignation, not having a job can cause a household to run into trouble very quickly. Some people are lucky enough to get a severance package, but others are only given a week’s notice.
Unfortunately, the majority of Americans do not have money on hand for emergencies. A study from Bankrate found that only 44 percent of Americans could pull $1,000 out of their savings to pay for an emergency. This means that without a job, most Americans are unable to pay their bills.
When you lose your job, you also lose your insurance. Having to pay for COBRA insurance can also drain what little emergency savings you have.
Excess Credit Charges
It’s very easy to run up your credit. If you’re living outside of your means, the things you can’t afford are going to go on a credit card. Even small purchases can add up over time. Or, if you’re out of work for a while and don’t have enough in your savings to cover your expenses, you’ll have to charge essential items like groceries and gas.
Then there are people who truly can’t control their spending. Credit card bills, loan payments, etc. quickly spiral out of control until the borrower is only able to make their minimum payment every month. The only ways to get back in control are by obtaining a debt consolidation loan or filing bankruptcy in NYC.
Divorce or Separation
A separation can place tremendous financial stress on you and your ex. There are legal fees to pay, child support and/or alimony, the division of assets and the financial stress of maintaining two households.
Some people have no choice but to file bankruptcy because they’re unable to pay their bills once they cover child support or alimony. Please be aware that child support and alimony are not dischargeable – you will continue to pay them even if you file bankruptcy.
Pay Cuts
Pay cuts have become more common since the start of the pandemic. Businesses did this to reduce their labor costs and prevent layoffs. While less pay is better than no pay, it’s still a problem if you’re unable to afford your bills. People who are unable to make up the difference may have no choice but to file bankruptcy.
Student Loans
While student loans are typically not discharged in bankruptcy, they can be a top reason why a person goes bankrupt. Most students enter college with the intention of getting a great job and being able to pay back their loan, but college is expensive and the job market is saturated.
Unfortunately, entry-level jobs are often not enough to pay back average loan costs, which are $36,510 per borrower for federal loans, and $54,921 for private loans. Consider that 20 years after graduating college, half of student borrowers still owe $20,000 on outstanding loan balances!
Unexpected Expenses
Unexpected expenses can be enough to turn your life upside down – financially and emotionally. For example, natural disasters like floods, tornadoes or hurricanes can force someone into bankruptcy. While you likely have homeowners insurance, you’ll need to take out a separate policy to be covered in events like floods or earthquakes.
If you don’t have this coverage, you might lose your home and your possessions. Not only will you have to face the loss of your home, but also you’ll have to find food and shelter in the meantime.
Chapter 7 and Chapter 13 Bankruptcy in New York
As you can see, there are many ways that people end up having to file bankruptcy. It is not always because they are “bad with money” or unable to control their spending. Most of us are guilty of spending more than we have or living beyond our means at times, but most bankruptcies come from things that are out of our control, such as medical expenses and job losses.
Nevertheless, financial management is a key part of preventing bankruptcy. This is why you’ll be required to complete credit counseling as part of your bankruptcy filing. If you are currently having difficulty paying your bills, please reach out to The Law Office of William Waldner. We specialize in bankruptcies in New York, and we can help get you off to a fresh start!