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The biggest cause of bankruptcy in the United States is medical expenses. One recent study found 62% of all personal bankruptcies stem from medical expenses, despite the fact that 78% of the filers had some form of health insurance. A serious illness or bad accident can lead to medical bills in the hundreds of thousands of dollars. Once savings and home equity are exhausted, bankruptcy may be the only choice.

Job loss can be equally devastating. Some are lucky enough to receive a severance, but not having an emergency fund makes the situation worse, and losing insurance coverage compounds the problem.

Others go into bankruptcy because they can’t control their spending habits. Credit cards, car payments and other debt can spiral out of control. After exploring consolidation and other payment options, some borrowers are left with no other recourse but bankruptcy.

Divorce is another common cause of bankruptcy. Legal costs alone can force some to file, but then there’s child support, alimony and other costs that pile on.

Unexpected expenses arise … unexpectedly. Floods, earthquakes or tornadoes destroy homes and belongings, forcing someone who has just lost everything to find new shelter and clothing. Many homeowners don’t have separate coverage specifically for natural disasters like earthquakes.

In the end, financial problems result from having more money going out than coming in. There are ways to protect yourself, but common sense and sound financial planning can head off bankruptcy. Speak with a credit counselor or financial planner before making this choice.

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