Although the concept of debt has been around since ancient times, the unnecessary social stigma of owing money hasn’t lessened much despite the increase in individuals with debts since the development of the credit card. Those people with debts they can’t repay still face socially imposed stresses that result in shame, guilt, and other negative impacts. However, recent studies show that up to 80% of U.S. citizens have debt of some kind, from mortgages to credit card debts. The high prevalence of debt should make having debt more acceptable in our society, but unfortunately that is not the case. At Behm Law Group Ltd., we work with clients filing cases for Chapter 7, 13, and 12 bankruptcy in Mankato, MN. Many of our clients communicate the severe stresses they face with unstable finances and how difficult it is to discuss these problems with their loved ones because of the stigma surrounding debs generally and bankruptcy specifically.
The idea that filing for bankruptcy is somehow a morality issue is simply not true. The misconception behind the social stigma of bankruptcy is that filers handled their finances poorly, perhaps even maxing out multiple credit cards, gambled excessively, or engaged in other irresponsible behaviors. The truth is that people file for bankruptcy for all kinds of reasons and with many kinds of debt.
In the United States, the most common reasons individuals file for bankruptcy stem from unavoidable life circumstances that are completely beyond their control. Whether someone accumulated debt from various sources or from one sudden event, filers report the following as the most typical causes of bankruptcy:
- Medical expenses: Because U.S. healthcare bills can be very costly and because the way insurance covers medical expenses is complex, many people file for bankruptcy to resolve large medical debts. These bills are often sudden and unexpected, throwing financial stability out the window.
- Job loss: The loss of an income will certainly throw a wrench in making debt payments on time, especially if a household has been living paycheck to paycheck. In many cases, a job loss is completely out of an individual’s hands. A recent example of a large period of job losses that workers had no control over was during the U.S. coronavirus shutdowns.
- Divorce: Sometimes marriages just don’t make sense anymore, and divorce is the right path for a couple. However, divorce significantly changes financial circumstances for both spouses, and legal fees can be high. In addition, ordinary living expenses may become unmanageable because each spouse must support his or her own household on only his or her own income instead of both spouses having the benefit of both incomes to support one household. Because of this, divorce is listed as a common reason why debts can’t be repaid.
- Natural disaster: Even with insurance, disasters like fires, floods, and tornados can put a serious strain on a household. If property is damaged from these natural disasters, repairs can add significant costs to an individual’s budget.
All these life events are situations that can’t really be avoided and have nothing to do with morality, responsibility or intellect. The reality of bankruptcy is that filers are in their financial situations for a lot of reasons and none of the causes may be because of poor morals or bad choices.