Five Reasons People Consider Declaring Bankruptcy
While many people believe that declaring bankruptcy in Toronto is always a sign of financial mismanagement, this is not always the case. Misfortune and disaster can also lay low someone who had been keeping their head above the financial waters. So here are five common reasons people become insolvent and may need a bankruptcy or a consumer proposal to solve their problem:
1. Losing their job
In an “iffy” economy, unexpected job loss is an increasingly common reason for people to get into financial trouble. Along with the serious blow to their self-esteem that accompanies being downsized, they could also be put in a precarious position with a sudden drop in income. If this is compounded by their spouse loses his/her job, or being laid low by illness disaster can really strike. Suddenly they find themselves coping with bills not covered by unemployment benefits or health insurance, and begin the slippery slope of using credit to pay for everything.
2. Separation and Divorce
Not only does marital breakdown come with a high emotional toll, it can hit the pocketbook equally hard. Legal expenses can quickly mount up, especially in a contested divorce. And then living expenses are doubled as each ex-spouse sets up their own household. Everything can quickly get very expensive.
3. When Lighting Strikes
The nature of many disasters is that they come out of the blue. Your car suddenly breaks down and costs thousands to fix up. Your roof gets irreparably damaged and your insurance doesn’t cover it. No matter what the disaster is, it has to be met and savings can dry up almost overnight.
4. Retiring With Debt
In an era where fewer people have adequate pensions, more and more people are retiring with serious debt loads, and reduced income to meet the payments and little prospect of increasing that income. Or, they may go into debt helping out their children or grandchildren who find themselves in financial straits. Stats show that number of seniors filing for bankruptcy is greatly on the rise.
5. Financial Mismanagement
OK, this one has to be said. This may come as a shock, but people are human. With the modern reality of easy access to credit, anything from a shopping spree to a vacation, to a house purchase can be a mistake, although it doesn’t appear to be at the time. So people take the risk and later live to regret it.
Every one of us makes mistakes daily. This does not define us. What we do about them is what defines us.
So misspending can get people into trouble. But this is a human mistake that many of us make. They just need to learn to forgive themselves, take the necessary steps to address the situation, and then get on with their life.
However, the last paragraph is easier said than done for most people. We can help by showing what the options are for dealing with debt crisis.
If you are considering declaring bankruptcy in Toronto call Richard Killen & Associates for a free assessment and a chance for a new start.
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.