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Why Do People File for Bankruptcy?

Financial difficulties can hit people for a variety of reasons. When bills start to pile up and people are having trouble paying them, they may think about filing for bankruptcy. If you find yourself in this category, you’re not alone. Statistics show that more than 500,000 Americans filed for bankruptcy in 2020, that’s nearly double the number from seven years ago.

As we examine why people file for bankruptcy, you’ll see some common situations that have left people looking to change their financial situation.

Reasons Why People File for Bankruptcies

In many cases, people look for other solutions to their money problems before deciding to file for bankruptcy. But bankruptcy is sometimes the best and only way out when faced with one of the following situations.


This is the most common reason why people file for bankruptcy. Statistics have shown that 40% of all bankruptcy filers cite losing their job as the reason for deciding to file. Chapter 7 is typically the most popular form of bankruptcy because most debts can be discharged allowing people to have a fresh start.

Although people may have emergency funds for situations like unemployment many times that’s not enough to cover a long-term situation. After exhausting those funds and other resources, bankruptcy is often the only choice left.


While we all like to indulge from time to time, too much overspending can lead some people to file for bankruptcy. Overusing credit cards and making poor financial choices can leave people with no money to cover their bills and other expenses.

Some people may turn to savings to cover these expenses, but others are living paycheck to paycheck. Accessing a savings account is not an option, forcing them to look at bankruptcy as a way to deal with their financial problems.

Medical Debts

The rising cost of healthcare can lead to unforeseen financial situations. An unexpected illness can also result in a mountain of medical bills. This type of debt can be included in a bankruptcy case. 

Some people may choose to file for Chapter 7 bankruptcy where most debts can be discharged. Others opt for Chapter 13 bankruptcy. In these types of cases, the debtor has a payment plan to pay many of their debts. While the amount is typically less than the original amount owed, the debtor must have enough funds to cover this debt.


Addictions to drugs, alcohol, or gambling can lead to many different problems, including financial ones. When this is the case, some may look to bankruptcy as a way to cope. When this is the case, it’s also important to seek treatment for the addiction so that all issues can be resolved.


Going through a divorce can leave many people in financial ruin. Whether it’s a result of mounting attorney fees or adjusting to only living on one income, divorce can lead some people to file for bankruptcy.

In some cases where joint accounts and debts were present, one party may stop paying the debt. This leaves the other person liable. This type of debt can become overwhelming. Unless you have removed your name from the debt, creditors can come after you for payment if your ex has become delinquent with payments.

For many the cost of divorce combined with old debt and settling into a new lifestyle can be too much to handle, leaving people to look at bankruptcy as an option. 

Becoming a Widow

Some widows are faced with deep financial hardships if their spouses did not have life insurance and now have mounting bills and debt to cover on their own. Widows may also try to keep their family home when it is not financially feasible. This can force some into bankruptcy. Although bankruptcy can help to clear up some debts, being able to stay in the same home may not be a realistic option. Many widows have to reexamine their situation and come up with a plan that makes sense for their new financial picture.

Are There Advantages to Filing for Bankruptcy?

If you are in serious financial trouble and at risk of losing your home and other assets, bankruptcy may be something to consider. Bankruptcy also will prevent creditors from contacting you to collect a debt. Everyone’s situation is different and needs to be looked at carefully. It is important to note that a Chapter 7 bankruptcy will stay on your credit report for 10 years.

For many, filing for bankruptcy is a way to make a fresh start. It clears most debts while keeping some important exempted property, and allows people to create a new financial plan.

Do You Have Questions About Bankruptcy?

If you are considering filing for bankruptcy and have questions, the team at Stiberman Law can help. We have 13 years of experience in bankruptcy law and can answer your questions and guide you. Call us today at (954) 922-2283 or fill out the form below to schedule a free consultation with a Florida bankruptcy attorney.

Written By:

Attorney Robert Stiberman

Robert is an experienced bankruptcy attorney with more than 13 years of experience in consumer Chapter 7 and Chapter 13 cases. Robert regularly practices in the Miami, Fort Lauderdale, and West Palm Beach Divisions of th... Read More

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