Causes of Consumer Bankruptcy in the United States

According to the Federal Trade Commission (FTC), consumer bankruptcy is filed for a variety of reasons. These include:

• Debt accumulation: Individuals struggling with high levels of debt, including credit card balances, medical bills, and mortgages.
• Financial hardship: Economic downturns, job losses, or changes in income can lead to financial difficulties that may necessitate bankruptcy.
• Medical expenses: Significant medical bills, particularly for individuals with chronic illnesses, can be overwhelming and lead to bankruptcy.
• Lifestyle choices: Engaging in high-risk behaviors, such as excessive spending on luxury items or substance abuse, can result in debt and financial instability that requires bankruptcy.

Factors Contributing to Financial Irresponsibility

The following factors contribute to an individual's decision to file for consumer bankruptcy:

• Unmanageable debt: Individuals with little savings, no income, or a history of financial mismanagement are more likely to seek relief.
• Financial crises: Bankruptcy can provide individuals with a fresh start and a chance to rebuild their finances after experiencing unexpected expenses or events.
• Creditor harassment: Overly aggressive creditors may prompt an individual to file for bankruptcy as a means of stopping creditor harassment.

Consequences of Filing for Consumer Bankruptcy

While filing for consumer bankruptcy is often seen as a last resort, it can have significant consequences. These include:

• Public records: Bankruptcy filings become publicly available and may be used to sue individuals or businesses.
• Credit score impact: Bankruptcy can significantly affect an individual's credit score for up to 10 years after filing.
• Tax implications: Individuals may need to pay income tax on their bankruptcy filing fee, which can range from $310 to $1,300.