Why Americans are Filing for Bankruptcy

After the sub-prime mortgage debacle and resulting housing market tumble, it's no wonder so many Americans are facing foreclosure and filing for bankruptcy as a defense. Take the housing market and combine it with a culture that has become accustomed to the ease and convenience of credit cards, it's almost expected that Americans would find themselves in an unmanageable financial situation.

But what is the main driving force in the increasing rate of bankruptcy filings? The Institute for Financial Literacy has been taking studies of bankruptcy petitioner demographics for three years, and we've got the most recent numbers that illustrate the pressures that are forcing Americans into Bankruptcy.

Why Americans are Filing Bankruptcy

Credit Cards

Credits Cards. They are convenient, fast and easy to use, but they come with a price. You go to the mall and buy $500 worth of clothes without considering the cost, because you will pay it off later.

In the good old days, our parents saved up all summer long to get the car of that they'd been dreaming about. Today, any car dealer will get you into a car you cannot afford through some creative financing.

Income Loss

The second most common driver associated with bankruptcy filings is some type of a reduction in income. Recently, many Americans, especially the self-employed, are feeling the effects of a reduction in spending and product and service consumption. The direct result is reduced income which makes keeping up with bills far more difficult.

Unexpected Expenses

So many Americans are living from paycheck to paycheck, and are unable to save up funds for unforeseen expenses. It is often a series of expenses that will push a family over the edge. Most often, expenses come in the form of car repair bills, or home maintenance or emergency repairs.

Job Loss

Layoffs, layoffs layoffs. Many companies are reducing their staff in an effort to reduce costs and react to a reduction in demand for their goods and services. Many households with dual incomes cannot stay above water after the loss of a job. In some cases, both breadwinners will suffer from a job loss.

Injury or Illness

Medical bills can stack up quickly, and those Americans who are not adequately insured can be devastated by hospital bills. Many serious injuries can cost up to $50,000 or more to treat, which most households cannot cover.

Divorce

Once a couple divides assets and pays all the legal fees associated with divorce, both sides can find themselves struggling to start their new life apart. Especially when going from a shared rent or mortgage, the difference can be difficult to adjust to.

Childbirth

Anticipating the financial toll of raising a child is easy to underestimate. Having and raising children can be financially taxing, to an extent not expected, especially by first time parents.

Death of a Family Member

Combined with the emotional toll the death of a family can take, the financial impact is often large. From funeral expenses to lost income, the passing of a family member can be the final straw the forces Americans into bankruptcy.