The United States Courts reported that bankruptcy filings actually decreased by about 24 percent in 2021.1 This was attributed to increased government aid during the early days of the COVID-19 pandemic as well as government mandates which halted evictions and foreclosures during that same period.
Even though the decrease in individual bankruptcy filings was notable, 2021 still saw 413,616 people filing for bankruptcy with almost 300,000 of those filing being Chapter 7 bankruptcies.2 Experts believe that bankruptcy filings will increase in 2022 due to a number of factors including the end of government pandemic aid programs and the end to pandemic moratoriums on evictions, foreclosures and student loan repayments.3
The reasons that bring people to filing for bankruptcy are quite common and do not discriminate, but there is one reason that stands out.
Often-cited research by Harvard University, published in 2005 in the journal Health Affairs, reported that 46.2 percent of bankruptcies were “attributable to a major medical reason.”4 That percentage includes those who lost their jobs or significant income due to illness, even if those research subjects didn’t themselves indicate that medical bills were the direct cause of their bankruptcy.
The research subjects cited at least one of the following specific causes which were grouped by Harvard researchers as major medical reasons:
1) Illness or injury (28.3 percent of respondents)
2) Uncovered medical bills exceeding $1,000 in the past two years (27 percent)
3) Loss of at least two weeks of work-related income because of illness (21.3 percent)
4) Mortgaging a home to pay medical bills (2 percent)
If the researchers had included addiction, uncontrolled gambling, childbirth, or the death of a family member, the total percentage of “medical bankruptcies” would have rose from 46.2 percent to 54.5 percent.5
A more recent 2019 study published by the American Public Health Association also found that a high percentage — 65.5 percent — of bankruptcies in the U.S. were due to medical issues.6
While major medical reasons have generally been the top cause of bankruptcies, there are also a host of other major issues which cause individuals to file for bankruptcy. Often there isn’t just one issue, but a number of issues which combine to cause extreme financial hardship.
Bankrate’s January 2021 Financial Security Index found that 4 out of 10 American adults didn’t have savings which would cover the cost of a four-figure care repair or emergency room visit.7
In light of this fact, a job loss or unexpected interruption in income due to illness or lay-off for even a short period of time can also be an important contributing factor in bankruptcy. Often people who experience job loss or medical bills or emergency home or car repairs will charge the unexpected bill to their credit cards. Excess credit use then becomes another top factor in bankruptcy filings.
Divorce also ranks in the top reasons individuals file for bankruptcy. Attorney fees related to the divorce, as well as a division of assets and the loss of the ex-spouse’s income, can cause tremendous financial strain. An ex-spouse failing to pay alimony or child support can also be the cause of bankruptcy, as can the death of the spouse and the reduction in income caused by that death.
People contemplating bankruptcy have gone through any number of emotionally charged situations which lead them into financial hardship. That is why it is so important for those contemplating bankruptcy to see the advice of a knowledgeable bankruptcy professional to help them assess the best course of action in their particular situation.
Debt and overwhelming debt can happen to anybody for reasons out of their control. Know that you have options, and a debt solution is possible. If you have questions about bankruptcy or are thinking about filing, an experienced bankruptcy attorney can help. They can help decide if bankruptcy is right for you.
Get the representation and protection you need with the bankruptcy lawyers at Hines Law in Massachusetts. Our 20 years of experience provides sound advice and guidance throughout your debt relief process. We serve clients throughout and beyond the Boston area. Call for a Free Consultation today!
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1 Bankruptcy Filings Drop 24 Percent, 2/4/2022
Link: https://www.uscourts.gov/news/2022/02/04/bankruptcy-filings-drop-24-percent#:
2 Bankruptcy Statistics Data Visualizations
Link: https://www.uscourts.gov/statistics-reports/analysis-reports/bankruptcy-filings-statistics/bankruptcy-statistics-data
3 Bankruptcy Filings Are Creeping Back Up in Early 2022 by Maria Chutchia, 4/5/2022
Link: https://www.reuters.com/legal/transactional/bankruptcy-filings-are-creeping-back-up-early-2022-2022-04-05/
4,5 Health Care Bill Bankruptcies by Lori Robertson, 12/18/2008
Link: https://www.factcheck.org/2008/12/health-care-bill-bankruptcies/
6 Top 5 Reasons Why People Go Bankrupt by Mark P. Cussen, 3/4/2021
Link: https://www.investopedia.com/financial-edge/0310/top-5-reasons-people-go-
7 Survey: Fewer than 4 in 10 Americans Could Pay a Surprise $1,000 Bill from Savings by Jeff Ostrowski, 1/11/2021
Link: https://www.bankrate.com/banking/savings/financial-security-january-2021/