Recognize These 5 Keys to Avoid Bankruptcy


When it comes to financial troubles, especially bankruptcy, the most common reason why so many people believe it occurs is poor money management. There's no doubt, it plays a crucial role, but there are some other reasons why people end up facing the horrible situation of bankruptcy. In some cases, the actual cause of bankruptcy tends not to be in control of the concerned person.

In fact, in some cases, someone who is keeping his/her financial status in mint condition can still face bankruptcy.

Why’s that? What are the key reasons behind this? What preventive measures can be taken for protecting yourself?

Well, least investigate some of the common reason people fall into the bankruptcy trap.

Medical Debt

On the whole, the first and foremost cause of people going bankrupt is medical debt. A survey conducted by the Harvard University concluded that more than 60% of all bankruptcies were the direct result of medical debt. It might not be that surprising if you just take a moment and think about it.

The cost of health care continues to rise, as advancements in technology are ever increasing, medication cost increase and insurance premiums for individuals and employers skyrocketed. Sure this is bringing better treatment options, but, more and more costly procedures for patients every single day. In addition to this fact, the health insurance is certainly not that far behind when it comes to being expensive and confusing.

No wonder why people get stuck in medical debt up to the neck.

Job Loss

Another reason for people filing for bankrupt is a job loss or underemployment. A job loss could be unpredictable.  If when the economy is going strong, companies could begin the process of laying off their employees to adjust their bottom line. Letting go of tenured higher paid workers, for cheaper less experienced ones.

An emergency fund is vital to cover yourself in the occurrence of a job loss. But even with the help of an emergency fund, it may not be possible to completely dodge the situation of the filing for bankruptcy Why? Because finding a job can take a longer time period.

For instance, some people in the country may have found work, but may not be making the same salary they once were.  If this continues for an extended period of time it can force you to deplete saving, and take on debt. Even the best-planned emergency fund won't be able to survive a situation a hardship like this forever.


The dividing of assets in a divorce can possibly expose some financial issues. The split couple might assume a mortgage, car payment, credit card debt, etc that they can't afford on their own now, thus, leading to a case for bankruptcy.

Obviously, we also cannot ignore the cost of legal fees to file for the divorce. In case it falls under the category of heated divorces, which continue for a long time, adding more dollars to the legal costs.

Lastly, if there are children involved in alimony or child support cost need to be considered.  When we sum up all these expenses, it is clear that why the count of new divorcees filing for bankruptcy is high.

Unforeseen Expenses

Last but not the least, unexpected expenses can be the cause of people filing for bankruptcy. In some cases, non-reliable insurance coverage can prove to be a factor in the loss. For example, if a fire annihilates your home and there is no adequate insurance coverage, then it may lead to bankruptcy.

Life happens. You need to make sure you have a plan for what it throws at you.

Even with a stable financial scene, this event can easily destroy your finances. The best chance to protect yourself from such a financial wreak is by taking control of your money and manage it with proper planning.

Reckless Spending

Simply put, don't live beyond your means. Avoid spending more than you make. If you don't you'll find yourself in trouble.

For instance, if you avoid budgeting your hard-earned money and don’t believe in setting aside some extra cash every month as savings, it simply becomes a matter of when you will face financial hardship rather than the matter of if you will face them.

And the hardship could stay for a decent amount of time too, depending on how terrible things get. What makes this worse is that countering the habit of overspending is completely in one’s own hands.

So it is vital to be smart with money as ignoring the proper financial management comes with a complete deal of stress and headaches which is definitely not worth it.


The best defense to avoid bankruptcy is having a calm and composed approach towards your financial planning while saving money in the form of an emergency fund.

At the end of the day, all that matters is, leaving nothing to chance, especially when it comes to avoiding bankruptcy. But, if you still feel that you are having a hard time facing a massive debt burden and you don’t see any way out, then you may want to opt for bankruptcy counseling help for the right guidance.

I hope this piece has provided you practical insight that you can take advantage to understand bankruptcy to its core.

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