What Leads to Bankruptcy?
There is a high cost for filing bankruptcy. For instance, your credit rating will be impacted greatly for 7 years, which many Canadians have started avoiding when possible. Understanding why people file for bankruptcy is important, and can help you avoid it in the long run. Additionally, there are other debt relief options that are less severe that may be available to you.
As you are reading the following list, keep in mind the significance of knowing that one of these causes alone is not typically enough to push an individual into bankruptcy. In fact, it is generally several of these situations combined that push a person into bankruptcy.
Having Very Poor Spending and Budgeting Habits
There are many who feel that the failure of an individual’s budgeting and spending in a wise manner to be the cause of them having to seek debt solutions like bankruptcy or a consumer proposal. One contributing factor associated with many bankruptcies are people who try to live above their own means. Of course, the occasional big purchase is not typically the cause of filing for bankruptcy. Under normal circumstances, there has been some type of personal disaster which pushed those who have poorly managed their own finances to the edge and into bankruptcy.
While poor budgeting and spending habits may not force a person into bankruptcy, it increases the possibility of them needing to seek help from another type of debt relief program, including debt settlement or a debt consolidation loan. In order to avoid having financial problems, you need to have a budget planned out and stick to it until your debt free.
No matter what we do, we are never going to be able to control everything that can happen in our lives. Natural disasters are referred to as “acts of God”, including major illnesses can cause anyone to end up in a situation where we would qualify for bankruptcy on account of the huge costs associated in such events. Having really good insurance and good saving habits may decrease the possibility of things like this from happening, but there will still be financial risks for most Canadians.
In Canada, the government’s health system covers citizens should they need treatment. Otherwise, healthcare would be very costly, and the cost of private medical care frequently cause financial problems, even forcing people into bankruptcy.
When people breakup and get a divorce, it is also considered as a disaster (a personal disaster), as it puts both parties in a situation where there is financial problems. Over 10% of people filing for bankruptcy in Canada have reported that the main contributing factor of their financial issues were due to a divorce.
Loss of Income
Losing your income or having a large decrease in wages is another factor that can result in bankruptcy. This type of situation can be caused by reduced salary or another type of work-related issue, even losing a job. Individuals that continue learning and improving skills with their current employer decreases the chance of this, but it would improve a job search if it did.
Plan Ahead and Avoid Bankruptcy
Bankruptcy can be harmful not only to your credit, but also to future prospects for job positions if a potential employer should find out that you filed bankruptcy. When you first realize you are having financial issues, that is the time to start doing something about it. Do not wait until there are no options besides bankruptcy.
To get more information on bankruptcy or other debt relief options, fill out our debt relief form.
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