No matter how secure someone might feel in his or her finances, the reality is that everything can disappear in the blink of an eye. This is especially true when the unemployment rate is in double digits and people in Maryland are struggling to find work. Experts now predict that there will be a new wave of bankruptcy filings soon, which can feel scary. However, understanding the reasons why people file for bankruptcy can ease some of those fears.
Costly economic events are the largest drivers of bankruptcy filings. These are things like job loss, illness, injury or divorce. As many as 66% of people who file for bankruptcy point to job loss as the reason. With the current nationwide unemployment rate is in the double digits, it is possible that many more bankruptcy filings will occur due to job loss.
Having a high debt to income ratio is another significant contributor. Household debt covers things like credit cards, auto loans, mortgages and student loans. Back in 2007, the average household debt outpaced income by about 25%. The current average debt to income ratio is lower — 0.95 versus 2007’s 1.24 — is good news for people in Maryland, but it does not eliminate the possibility of bankruptcy.
The idea of bankruptcy runs counterintuitive to what most people think of as a smart financial move. But when someone can no longer keep up with his or her bills, it does not make much sense to just sit back and let interest rates cause balances to balloon even further out of control. In this situation, bankruptcy offers a proven approach to addressing one’s troubling financial situation.