When someone decides to apply for bankruptcy, it is usually because they have been struggling to keep up with their financial obligations for a while. They have finally reached a point where they can no longer see a way out. Although there can be many reasons why someone ends up in this situation, these four main causes of bankruptcy tend to be the most common.

What are the 4 main causes of bankruptcy?

Job Loss or Reduction in Income

One of the most common reasons people file for bankruptcy is because they lost their job or a significant amount of income. This makes it difficult to pay regular monthly bills, let alone any outstanding debts that may need to be paid. From medical bills to credit card debt, it can be very difficult to make ends meet if you don’t have a steady income coming in. With multiple debts and no way to pay them off, bankruptcy may start to look like the best option.

Unexpected Expenses

Another common cause of bankruptcy is when people have unexpected expenses that they cannot afford to pay. This can be anything from a medical emergency to a car repair. If you don’t have any savings or other way to cover the cost of these unexpected bills, it can quickly put you in a difficult financial situation. Once again, with multiple debts and no way to pay them off, bankruptcy may look like the best option.


Divorce can also lead to bankruptcy. When you get divorced, not only do you have to deal with the emotional stress of the situation, but you must face the financial implications as well. In some instances, one spouse is left with a lot of debt that they cannot pay off on their own. This can quickly lead to financial ruin and the need to file for bankruptcy.

Money Management Skills

Finally, another common cause of bankruptcy is simply poor money management skills. If you are living paycheck to paycheck and not saving any money, you may not be able to deal with any unexpected expenses that arise. Additionally, if you constantly spend more money than you have coming in, it is only a matter of time before you find yourself in a difficult financial situation. Poor money management skills can often be the underlying cause of bankruptcy, even if there is no major life event that triggers it.

If you find yourself struggling with your financial obligations, it is important to understand that you are not alone. Many find themselves in this situation, and although it might be difficult to deal with, there is always a way out.

Can I Avoid Bankruptcy?

If you would rather not file for bankruptcy, there are some things you can do to ensure your finances stay in check. The following tips can help you avoid bankruptcy:

  1. Make a BudgetOne of the best tips to avoid bankruptcy is to make a budget and stick to it. This helps keep track of your income and expenses to ensure you are not spending more money than you have coming in.
  2. Live Below Your MeansAnother important thing is to make sure you are living below your means. This means spending less money than you make and saving the rest. Doing this can help you build a financial cushion you can use to cover unexpected expenses without having to resort to debt.
  3. Build up Your SavingsSpeaking of savings, it is crucial to ensure you regularly put money aside into a savings account. This can help provide you with a financial safety net to fall back on in case of an emergency.
  4. Pay off Your DebtIf you have any outstanding debt, make a plan to pay it off as quickly as possible. The longer you wait to pay off your debt, the more interest you are going to accrue, and that only worsens the situation.
  5. Avoid Using Credit CardsIf you have excessive debt, one of the worst things you can do is to start using credit cards. This only adds to your existing debt and can make it even more difficult to pay off.
  6. Seek Professional HelpIf you struggle to control your finances, don’t hesitate to seek professional help. There are many organizations and individuals out there that can help you get your finances back on track and avoid bankruptcy.

How Will Bankruptcy Affect My Life?

Now that you understand what bankruptcy is and how it works, you may wonder how it will affect you if you decide to file. The following are some of the ways bankruptcy can affect your life:

Your Credit Score

One of the most immediate ways bankruptcy affects your life is that your credit score takes a significant hit. This can make it difficult to get approved for loans or credit cards in the future.

Your Employment Status

Another way bankruptcy can affect your life is by jeopardizing your employment status. If you work in a field that requires a security clearance, for example, bankruptcy can make it difficult to maintain that clearance.

Your Housing Situation

Bankruptcy can also affect your housing situation. If you own your home, you may be at risk of losing it to foreclosure. If you are a renter, your landlord may be less likely to renew your lease if they find out you have filed for bankruptcy.

Your Personal Relationships

Finally, bankruptcy can also affect your personal relationships. The stress of financial hardship can put a strain on even the strongest of relationships. Additionally, you may find it difficult to borrow money from friends or family members if they know you have filed for bankruptcy.

The Law Office of Christopher P. Walker: Your Anaheim Bankruptcy Attorney

Regardless of these implications, the pros of bankruptcy can outweigh the cons for many people. If you are struggling to keep up with your financial obligations, bankruptcy may be the best option for you. To learn more about bankruptcy and how it can help you, contact the bankruptcy attorneys today at the Law Office of Christopher P. Walker.