Top 5 Reasons Why People Go Bankrupt

In this article today, we will explore the top 5 reasons why people go bankrupt. By understanding these reasons, we hope to shed light on the importance of financial literacy and help individuals avoid the pitfalls that can lead to financial ruin.

Top 5 Reasons Why People Go Bankrupt
Top 5 Reasons Why People Go Bankrupt

Bankruptcy is a term that no one wants to associate with. Yet, it is a reality for many individuals and families across the world. In the United States alone, there were over 22,000 bankruptcy filings in 2021. Despite the stigma surrounding bankruptcy, it is a legal process that can provide relief to those struggling with overwhelming debt.

Top 5 Reasons Why People Go Bankrupt

Bankruptcy can be a result of a variety of factors. However, there are several common reasons why individuals and families find themselves in dire financial situations. Here are the top 5 reasons why people go bankrupt:

Medical Expenses

Medical expenses are a leading cause of bankruptcy, with over 60% of all bankruptcy filings in the United States attributed to medical bills. Even with insurance, the out-of-pocket expenses for medical care can be overwhelming, particularly in cases of serious illness or injury.

To avoid being overwhelmed by medical debt, it is important to take proactive measures to protect your financial well-being. Building an emergency fund to cover unexpected medical expenses, practicing preventative care, and maintaining a healthy lifestyle are all effective strategies.

Additionally, exploring alternative healthcare options such as telemedicine and community health clinics can help you find more affordable care. If you find yourself struggling to keep up with medical bills, consider negotiating with healthcare providers or setting up payment plans. However, if your debt becomes too overwhelming, bankruptcy may be the only viable option for debt relief.

Job Loss

Losing a job can be a major financial setback and a common reason for individuals to file for bankruptcy. Without a steady income, bills and expenses can quickly pile up, leaving individuals with no choice but to rely on credit or fall behind on payments.

To protect your financial well-being, it’s important to take proactive measures such as building an emergency fund and adjusting your budget to reduce expenses during times of financial uncertainty. If you do experience a job loss, communicate with your creditors and explore your options for debt relief, such as negotiating with lenders, setting up payment plans, or filing for bankruptcy if necessary.

Credit Card Debt

Credit card debt is a common reason for bankruptcy filings. High interest rates and fees can quickly accumulate, making it difficult to pay off balances.

To avoid falling into credit card debt, use credit responsibly and only charge what you can afford to pay off each month. Prioritize paying off high-interest cards first, and consider consolidating debt through a balance transfer or personal loan. If you are overwhelmed by debt, bankruptcy may be an option to consider, but it’s important to consult with a financial professional before taking this step.


Overspending can lead to financial difficulties and bankruptcy. To avoid overspending, create and stick to a budget that balances income and expenses. Cut back on unnecessary expenses and save for emergencies. Seek professional help from a financial advisor or credit counselor if necessary to create a plan for debt reduction and management. Consider bankruptcy as a last resort after exploring all other options.


Divorce can be a financially devastating experience for individuals, especially if there are shared assets and debts to divide. Legal fees and court costs can also add up quickly, further straining finances.

To protect your financial well-being during a divorce, it’s important to work with a qualified divorce attorney who can help negotiate a fair division of assets and debts. It may also be necessary to adjust your budget and living expenses to accommodate for changes in income and household expenses.

If you find yourself overwhelmed by debt or unable to keep up with payments following a divorce, bankruptcy may be an option to consider. However, it’s important to consult with a financial professional or bankruptcy attorney to fully understand the consequences and alternatives before taking this step.


Understanding the common reasons for bankruptcy can help you avoid financial difficulties. Take proactive steps such as creating a budget, saving for emergencies, and seeking professional help when necessary. If you do face financial hardship, work with a qualified professional to understand your options and make the best decision for your situation. Remember, bankruptcy should only be considered as a last resort.


Is Bankruptcy the Only Option for Addressing Overwhelming debt?

No, bankruptcy should only be considered as a last resort after exploring all other options. Other options may include debt consolidation, debt management plans, or negotiating with creditors to lower interest rates or payment amounts. It’s important to work with a qualified financial professional or credit counselor to determine the best course of action for your individual situation.

Will Bankruptcy Ruin my Credit Score Forever?

While bankruptcy will remain on your credit report for up to 10 years, it is still possible to rebuild your credit over time. By taking proactive steps such as making payments on time, keeping balances low, and avoiding new debt, you can gradually improve your credit score. It’s important to be patient and persistent in rebuilding your credit after bankruptcy.

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