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Top Five Reasons People File Bankruptcy


Overall, there is only one reason people file bankruptcy. Their assets and incomes greatly exceed their debts and obligations. As a rule of thumb, if your current and delinquent secured and unsecured debts are more than three times your annual income, there is no realistic way to pay these debts off. Many families are barely making ends meet because they are at or near this threshold. A single financial storm could send them under the waves.

In these situations, families have basically two choices. They can hope for things to get better, or they can work with a Chicago bankruptcy attorney and take control over their own finances. Truthfully, neither choice is particularly attractive. But filing bankruptcy and making some changes is a lot better than the alternative. Moreover, when you file bankruptcy, your financial situation bottoms out and gets better. When you do nothing, things get worse.


A few people get into trouble because they live beyond their means. Credit card companies are eager to lend money, even to people with less-than-perfect credit. Furthermore, when a debtor maxes out one card, the credit card company often issues another one.

It’s very easy to get caught on the debt treadmill in these situations. These individuals diligently make minimum payments every month, but their credit card balances hardly move.

Frequently, overspending is not the sole cause of bankruptcy. Usually, it’s combined with something else. For example, if Frank loses his job, he may have to live on credit cards for a few months. That strategy eventually comes back to haunt Frank.

Job Loss

Unemployment rates are at near-record lows. Most available jobs are labor-intensive and low-paying retail and other positions. Less intense and higher-paying jobs, the kind that allows people to support their families and spend time with their families, are few and far between.

The average job search lasts about five months. That usually means five missed credit card payments. Most people stop making these payments when money is tight. That search time could also mean at least one or two missed secured debt payments. Once people fall behind on home loans and car notes, it’s difficult to catch up.

Business Downturn

Many people rely on side hustles to supplement their incomes and keep their heads above water. Even a slight loss of income of under $500 a month could be the difference between making bills and missing bills.

On a related note, business downturns also often lead to income tax problems. When business declines, may people stop making estimated tax payments. Once again, when business picks up again, this strategy could mean trouble further down the line.


Usually, divorce and separation means attorneys’ fees and other unanticipated costs. Additionally, maintaining two households is much more expensive than maintaining one household.

We usually advise people to file bankruptcy before they file divorce. This approach reduces the size of the marital estate, making the property division less complex and less costly.


We end this list with the most common reason people file bankruptcy. According to some estimates, as many as two-thirds of consumer bankruptcies are medical bankruptcies. Even if patients have health insurance, coinsurance, copays, and deductibles are often financially crippling, especially if the debtor has cancer or another very serious chronic illness.

 Reach Out to a Savvy Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout Chicagoland.



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