Saturday, February 07, 2009

Root Causes of Bankruptcy

Instapundit has a link to an article analyzing the reasons why bankruptcies happen. The post, by Megan McArdle cites a new study that disputes an earlier study that bankruptcies happen due to unexpected medical crises. Number 1 cause?
Over-consumption makes households financially over-stretched and more susceptible to adverse events.
That's been my experience. Bankrupts often don't have a budget, or a plan to dig out of debt, once they get in over their head. Funnily enough, the free spending doesn't stop, even when it's clear, to them as well as their creditors, that they can't possibly avoid bankruptcy.

Anyone can get in over their head, financially. Most of us no longer work for the same employer for a lifetime, or even in the same industry. We have periods of unemployment, more education (often quite expensive) to make ourselves more employable, and life events - birth, illness, family crisis. They all combine to leave us less solvent, more vulnerable to catastrophe. Add to that the likelihood that leaving a job also triggers loss of health insurance, and you have a precarious situation.

However, being an adult means that, sometimes, you hunker down, eliminate all the frills and non-necessities, and begin to tunnel out of debt. It's not fun. It's not all that easy. It takes discipline. But, it can be done.

We're in a re-trench mode, right now. Sometimes, I chafe at the restrictions that I've placed on myself. But, better that I restrain myself, than put myself in a situation where the choice is NOT mine.

5 comments:

offshore loan said...

If I may add, causes of bankruptcy are: Uncontrolled Spending, Job Loss, Medical Expenses, and Unexpected Disaster, For us to be able to avoid bankruptcy, we have to be aware of the latest trends in banking particularly getting loans.

Ethel said...

I agree that the other causes of bankruptcy are: Uncontrolled Spending, Job Loss, Medical Expenses, and Unexpected Disaster. Usually, we ask help from loan agencies if we need money. But today, we heard news about bankruptcy among companies and some individual. Debt settlement solution is one of best solutions for this problem. Before you avail services from debt settlement agency, it is advisable to study their background first.

Sofia said...
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Sofia said...
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Allan Morais said...

Discipline is key to avoiding bankruptcy. Over-consumption occurs when a person does not have discipline and control over his spending habits. The idea of having a budget every month can help you control the urge to buy unnecessary stuff. People who are easily attracted to spending will find it difficult, but if done properly, it can help you stabilize your financial status and manage your monetary resources efficiently.