No one intends to put themselves through the ordeal of declaring bankruptcy. Despite this, more than 120,000 Canadians file for bankruptcy or a consumer proposal every year. Individuals who have worked hard but can no longer afford to make their debt payments fall into this category. From the divorced financial planner who can no longer afford to pay his or her credit card bills to the suddenly unemployed single mother, whatever the situation most people have been there. To file for bankruptcy, there is no single reason or individual peculiarity – anyone can be affected by this.

You’re not the only one facing bankruptcy, so don’t feel like you’re alone.

The Main Causes of Bankruptcy

People who are drowning in debt can use the legal procedure of declaring bankruptcy to wipe off their debts and begin all over.

There are a variety of reasons why people choose to file for bankruptcy; nevertheless, it is typically a confluence of events or circumstances in one’s life that leads people to the point where they have exhausted all of their financial options. Some of the most common reasons why people file may include:

Separation/divorce

In both emotional and financial terms, divorce may be devastating. At the time of filing for personal bankruptcy, one-third of Canadians are divorced or separated. Divorce can be extremely expensive, both in terms of legal fees and the time spent in court. Your daily expenses will climb as a result of having to split the same budget with your ex-partner to maintain two separate households.

There can be additional costs for those who have been through several divorces. The combination of higher expenses, payments for spousal or child support, and legal fees leaves many people in a position where they are simply unable to meet their financial obligations.

Loss of Employment

Losing a job or seeing your salary decrease can have a significant impact on your financial situation. This is especially true if you are the sole breadwinner for your family. Paying your bills while you look for work means using credit cards and loans, which quickly add up to a significant amount of debt. Even if you get a new job, you may not be able to afford all of your debts.

Medical Problems

The cost of a physical problem or illness can be enormous, even though Canadians are fortunate to receive government healthcare. If a person has a major medical condition, they may have to take time off work, or maybe lose their job altogether. Those on disability due to a medical ailment may find the compensation insufficient.

Unplanned costs

A flood, a fire, or a huge auto repair are all examples of things that might cause stress. It is hard to anticipate everything that may occur in life and make enough preparations through planning and savings. You can lose all of your savings in a matter of minutes if an unexpected accident or disaster occurs. Unforeseen events can push people into bankruptcy if they don’t have insurance.

Mismanagement of Finances

Some people find it difficult to keep track of their finances. They overspend, use credit cards irresponsibly, and pile on a slew of debt. As a result, high-interest credit card bills accumulate, making it difficult to pay them off. A big amount of debt can make it difficult for people to keep up with their monthly payments, so they look for debt management options.

An Increase in the Cost of Living

The amount of money that is available to keep up with debt repayment decreases as a result of inflation as well as rising interest rates. When the cost of necessities rises, more people resort to borrowing money or cutting back on their debt payments to make ends meet. Consumer insolvencies rise as a result of long-term inflation and a drop in asset prices – particularly house equity, due to increasing interest rates. When inflation and interest rates go up, people who were once able to keep up have to live from paycheque to paycheque.

Co-signing

A lot of the time, well-meaning family members would put their own money up as collateral or lend it to someone they care about. To the point where their safety net is stretched too thin, they may be forced to take on additional debt. If you borrow money for someone else, it could put you in a position where you are unable to make your regular payments or where your bank accounts are depleted, to the point where you are unable to fund your own additional needs.

To Stay Out of Bankruptcy, What Should You do?

Preventing bankruptcy can be accomplished in several ways.

Contact a Debt Expert

If you are having trouble keeping up with your financial obligations, the first step you should do is to consult with a debt expert. They can examine your circumstances in conjunction with you and offer advice regarding the next steps you should take. It’s possible that filing for bankruptcy isn’t the only solution available to you if you’re struggling to manage your debts at this point in your life, know your options.

Cut Back on Spending

It’s time to cut your spending if you’re in debt. Keeping track of your monthly spending and income is as simple as creating a simple budget. Take a look at your spending and get rid of everything unnecessary. Eating out, signing up for a subscription service, and shopping are all examples of this. Consider this a short-term solution. Debt relief gives you the freedom to revisit your spending plan at any time.

Avoid Credit Cards

If you can’t make your credit card minimum payments, switch to cash. Spend only what you can afford. With cash, it’s easier to keep track of your spending and you won’t rack up credit card debt that you have to pay later.

Bills Should be Paid First

Ensure all your responsibilities are met before spending money on anything else. This covers things like the payments you make on your mortgage or rent, as well as your insurance and utility bills, and even your cell phone bill.

Emergency fund

It’s important to have an emergency fund in case you lose your job or have to cope with an unexpected situation, such as a medical emergency. If difficult, start small. Even if you save $20 a month, it’s better than nothing.

Debt Consolidation

All of your unsecured outstanding debts can be consolidated. Consolidation options can make it easier to deal with your financial obligations. A debt consolidation combines all of your unsecured debts into a single monthly payment. Helping you to manage and budget better with one payment rather than many for the month. 

Conclusion

Most people believe that they are solely accountable for their debts and the consequences that may result. It’s crucial to keep track of your spending and saving, but life throws curveballs at us that we don’t plan for. Bankruptcy can be used to alleviate the financial consequences of such occurrences. Debt affects all ages, from 20-something to retirees, seeking support to declare bankruptcy or to find out what other debt options there are .

A debt expert can help you weigh your options and help you to choose the best option that suits your situation without having to file for bankruptcy. Book a free appointment with us at EmpireOne Credit and begin your journey to a debt-free life.