The reason most people file for bankruptcy isn’t credit card debt

| Apr 22, 2021 | Bankruptcy

Bankruptcy still carries social stigma. It is typical for people to think that filing for bankruptcy will lead to others judging them. There is a common myth that overspending and irresponsible credit card use are the primary reasons that people file for bankruptcy in the United States.

While it is true that there are households that do not use credit cards responsibly, even credit card debt can be a sign of another, more pressing issue. The number one cause of bankruptcy in America is actually something outside of an individual’s control.

Illness, car accidents or sudden medical events push people into bankruptcy

The number one reported reason that people eventually file for bankruptcy is unexpected medical expenses. For some people, it will be a diagnosis with cancer or a similar, long-term illness that results in hundreds of thousands of dollars in medical debt.

For others, it might be a severe injury in a car crash that not only burdens them with credit card debt but also leaves them without any income, meaning that they start racking up credit card debt just to pay for groceries and utility bills. Even those with great health insurance can wind up with thousands of dollars in medical debt if they need extensive or out-of-network medical care.

The average person who needs to file for bankruptcy in the United States didn’t live a life of frivolous spending but rather fiscal responsibility until something outside of their power occurred. Significant medical events can quickly diminish someone’s savings, rapidly create debt and even cut them off from their source of income.

It’s better to file before creditors take drastic steps

Medical debt, whether owed directly to a hospital, a financing company or a credit card that you used to pay a bill, is generally unsecured debt. That means that you can discharge it in bankruptcy.

However, hospitals and other care providers could file a lawsuit against you and either try to garnish your wages or place a lien against your home or other assets to force you to repay your debt. Bankruptcy won’t get rid of an existing judgment, garnishment or lien, but it will help you temporarily stop a pending lawsuit and potentially discharge the debts that led to collection activity.

Filing for personal bankruptcy can be a way for you to regain control over your finances when health issues push your monetary circumstances outside of your control.