Bankruptcy Causes
While some people might find themselves contemplating bankruptcy as a result of spending more than their income, there are certain triggers that could make bankruptcy a viable option for many.
In the past, medical bills (whether foreseen or unforeseen) have forced many people into bankruptcy. A Harvard Study reported that half of the 1,458,000 bankruptcies filed in 2001 were caused by medical illness and bills.1 Many of these filiers were middle aged, had attended college and even had medical insurance. The lead author commented, “Unless you’re Bill Gates you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick.”2 The study did not mention whether any of these filers also had medical disability insurance, but any employee would be well informed that medical disability insurance would have prevented many of these filings.
According to a press release by the American Bankruptcy Institute on December 15, 2008, the first nine months (Jan.-Sept.) of 2008 realized a dramatic increase of Bankruptcies up 35% to 841,496, compared to 622,999 for the same time period in 2007. “The dramatic spike in both personal and business bankruptcies reflects an economy in distress, with worried consumers over-extended and unable to supply the spending typically needed to keep the national economy going,” said ABI Executive Director Samuel J. Gerdano.
When economies are strained as we saw in 2008, home prices fall, gas prices rise and consumers over extend themselves rather than re-evaluating and minimizing their spending habits. October 2008 saw a rise in consumer bankruptcies – October’s filings topped 100,000 for the first time since the BAPCPA went into effect. “October’s sharp spike in new consumer bankruptcies confirms the severe financial stress on household budgets caused by high debts, flat incomes and declining home values,” said Gerdano.
1Himmelstein, David, Warren, Elizabeth, Thorne, Deborah, & Woolhandler, Steffie. “MarketWatch: Illness And Injury As contributors To Bankruptcy” Health Affairs. 2 February 2005.http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1.
2 Id.
