Top 10 Reasons People File for Bankruptcy

Millions of people file for bankruptcy each year. There are many different reasons that people seek the fresh financial start that they can get from bankruptcy. In fact, most people end up needing to file because of unexpected events in their lives. Simple overspending is one of the least common reasons for a bankruptcy filing.

The reasons for bankruptcies indeed are varied. As Las Vegas bankruptcy attorneys, we meet ordinary people who need and deserve a fresh start every day. Here are some of the top reasons that people file for bankruptcy.

Medical Bankruptcies

Medical care is expensive. Even a medical event of moderate severity can quickly overwhelm the family finances. In bankruptcy, medical debt is a non-priority. That means, usually, it can be eliminated through bankruptcy. Medical emergencies are unexpected, and medical insurance is often insufficient to meet expenses. Bankruptcy can be an effective way to address medical debt and take advantage of other protections.


Most households are set up to follow a budget, so sudden unemployment can throw a wrench into your plans. Without a steady income, it can be impossible to pay your mortgage, pay for the utilities or meet your daily living needs. You may need to rely on credit cards to get by until you get back on your feet. Fortunately, some of the debts you encounter during a period of unemployment can be addressed during bankruptcy.

Loss of a Family Member

When you lose a family member, it can be difficult to make ends meet. The family may have relied on their loved one for financial support. Generally, a person’s heirs are not responsible for paying their loved one’s debts. However, it can still be challenging to manage the household budget in their absence. Bankruptcy may be needed because of the loss of a loved one.

Lawsuit Judgment

A civil judgment can be more than the person responsible can handle. In fact, some civil judgments are as high as six or seven figures. There’s no way that most people can pay a judgment like that.

However, there are some situations where a civil lawsuit judgment can be dismissed in bankruptcy. The timing of the lawsuit in relation to the bankruptcy may be significant. It’s important to note that some kinds of legal judgments can’t be dismissed in bankruptcy. Criminal restitution and child support are two examples.

Divorce or Child Support

Divorce can impose a financial hardship that ultimately leads to bankruptcy. Suddenly, the income that used to support one household is split in two. One party may be immediately left without a means of support and have alimony and child support obligations to meet. All of this financial strain can become too much. Divorce accounts for thousands of bankruptcies each year.

Bankruptcy to Stop Home Foreclosure

Sometimes, bankruptcy filings occur to stop home foreclosure. If a foreclosure is about to happen, filing for bankruptcy can result in a temporary stay. In a Chapter 7 bankruptcy, the stay is only temporary. Eventually, the foreclosure can still occur. However, a Chapter 13 bankruptcy case gives the homeowners a chance to catch up on late payments. Stopping a home foreclosure can be a reason that someone may choose to file for bankruptcy.

Natural Disasters

People affected by a natural disaster may have their life as they know it turn upside-down instantly. Their home may be destroyed by a hurricane, tornado, earthquake or fire. They may not be able to work for a period of time.

Even without a sudden natural disaster, it can be hard to stay out of debt. Then, when a natural disaster hits, a family may need to rebuild their entire life. They may be displaced from their entire community. They may be missing essential documents. A natural disaster can cause unplanned difficulties that ultimately result in bankruptcy.

Business Failure

Bankruptcy can be an effective way to handle financial shortfalls with a business. Sometimes, bankruptcy can help a company restructure its debts and continue to operate. In other situations, it’s the best way to wind up the business. There are many options for how to address business-related debts. Bankruptcy may or may not be the best option. However, business failure is one reason that people file for bankruptcy.

Student Loans

Student loans can often make it difficult to meet the budget. According to Forbes, Americans owe trillions of dollars1 in student debt. Even though student loans are not dischargeable in bankruptcy proceedings, they are still why many individuals and families end up in bankruptcy.

For some families, a student loan payment can be as much as their home payment. Sometimes, the math just doesn’t add up. Student loans can’t be erased because someone files for bankruptcy. However, you may be able to address other debts that can make it a little bit easier to meet obligations.

Car Repossession and Bankruptcy

Filing for bankruptcy can be a way to address a car repossession. There are several ways that a bankruptcy filing may help you keep your vehicle. If nothing else, an automatic stay on repossession when you file can give you time to figure out your options. Many people file for bankruptcy to get relief when they’re facing a car repossession.