Most people would rather parade naked down Main Street than file bankruptcy.
You can order your life so you don’t ever need bankruptcy relief from debts you can’t pay.
After more than 30 years as a bankruptcy lawyer, I’ve figured out the formula that assures that you’ll never met me in my professional capacity.
My five easy steps to avoid bankruptcy
- Have no family
- Stay perpetually employed
- Enjoy good health
- Don’t go into business
- Rent, don’t buy, your home
Do all that, and your chances of needing a bankruptcy lawyer are slight.
It might work.
But really, how much of that list do you really control?
And what kind of a life are we describing without family or business?
Life causes bankruptcy
The events that drive a bankruptcy happen to all of us, at some time. These events aren’t confined to the foolish or the extravagant.
The only variable is whether they come in clusters, how long they persist, and the level of your reserves to carry you through bad times.
Leading causes of bankruptcy
Statistically, the Big Three that trigger most bankruptcy filing are divorce, job loss and ill health.
Divorce is expensive, even before you count the added expense of two households where there previously was one. Debts that were manageable as a couple are oppressive as a pair of singles.
Job loss ranks up there with divorce. Again, without income, even modest amounts of debt are beyond paying. Unemployment benefits only go so far.
Illness is a double edged sword. Not only are there the bills for care and medication, there’s the interruption of income that accompanies ill health. A Harvard study from several years ago found that 62% of bankruptcies were caused by medical bills. Three quarters of those filing bankruptcy because of medical debt had health insurance at the onset of their illness.
The deadly duo
Home ownership and entrepreneurship round out my list of causes of bankruptcy. We count those as noble goals as a society. But they come with risk.
Yet mortgage debt and the desire to hang on to a home brings a high percentage of people in my door. The troubled home is sometimes associated with the buying frenzy that preceded the Great Recession. Just as often, the underlying reason people can’t make their mortgage payment ties back to loss or reduction in income.
Entrepreneurs are by definition, people who take risks to go into business for themselves. As much as we idolize successful business people, far more small businesses fail than prosper.
And the funding for most small businesses doesn’t come from IPO’s; it comes from HELOC’s, 401(k) loans, and credit cards. When the business fails, it takes the owner down with it.
Give yourself a break
A life structured around my list to avoid bankruptcy is hardly realistic or rewarding. So, accept that life may deal you lemons, and bankruptcy is one of the ways to make lemonade.
If you see your situation in these five precursors of bankruptcy, know that you aren’t alone. Before beating yourself up if you need bankruptcy relief, look at the impact of outside forces on your situation.
But don’t let guilt or fear keep you from doing something positive about a bad situation. Hiding from the realities of debt keeps you in emotional and financial shadow.
Image courtesy of Wikimedia and Ebdow.