Why Do People Go Bankrupt?
Well, because their debts exceed their means to pay them.
OK, after stating the obvious, here’s a bit more detail. More than 118,000 Canadians a year are filing for bankruptcy or doing consumer proposals. Here are some of the top reasons why.
Excessive Use of Credit
Not surprisingly, this continues to be leading cause of bankruptcy. Many of us spend too much, save too little and rely too much on plastic credit. The problem of being overextended can combine with one of the reasons below to push people over the edge. While carrying a heavy debt load, they might, for example, get sick and become unable to work, leading to financial disaster. Mortgages, bank and finance company loans, taxes and student loans are some of the other types of credit that fall into this mix.
Job Loss or Seasonal Employment
If you lose your job, or are without work for extended periods, then it is hard to stay on top of debt payments. Even having work hours cut back or overtime eliminated can lead to financial problems. To make ends meet, a cash-strapped family might turn to credit cards to pay monthly bills, digging a deeper hole for themselves. Building an emergency fund is the best way to cope with this kind of problem.
The difficulties with medical issues aren’t as acute in Canada, with our public health care, as they are in the United States, where serious diseases or injuries can lead to massive bills that can wipe out savings, retirement accounts and education funds. Still, if you are laid up and can’t work, without adequate insurance or savings, then a spiral down into insolvency may be inevitable. And not all medical costs are covered by health care or insurance.
Divorce and separation can cause a number of financial hardships. First there can be hefty legal fees, which themselves may drive people into bankruptcy. Division of assets, child support and alimony can also cause severe problems. Wage garnishments, if support or alimony payments are not kept up, can drive some ex-spouses over the edge. And others who don’t receive their court-mandated support can also find themselves floundering.
The list of other common financial pitfalls can include failed businesses, non-payment of taxes, inadequate pensions, unexpected disasters and gambling problems. When faced with these kinds of problems, you should seek out the advice of an experienced Licensed Insolvency Trustee, such as Richard Killen & Associates, who will guide you through your options and help you find the quickest road to recovery.