#1 Bad luck
Let’s face it, sometimes, no matter what you do, you can fall prey to bad karma. Stuff happens beyond our control and the saying “bad stuff comes in threes” was made up for a reason. You may have all the resources you thought you needed to build your financial buffers, but when unexpected disasters befall you one after another, those resources dwindle and vanish. The #1 reason for bankruptcy in America, responsible for more than half of bankruptcies filed nation-wide, happens to be ill or failing health. Medical and health problems cause a legion of other issues such as unemployment and large medical bills that can easily cripple your bank account. These are other events that can wipe you out even if you are reasonably well off: accidents, natural disasters, economic shifts, even crime. A loss of income brought about by any sudden event can do that damage. The question is, how formidable is your financial fortress so that despite the gravity of any situation, you’re still able to get back on your feet and recover. Don’t let that fortress be a house of cards.
#2 Lack of preparation
Depending on how well prepared you are with handling unexpected, unpredictable and undesirable situations that cost a lot of money, you’ll be able to determine if you sink or swim with the consequences of misfortune. How thick are those walls you built around your pocket book? This is where emergency funds, insurance policies and estate planning enter the picture. Part of a sound financial plan is to make sure the caulking is tight and you’ve got a strong defense to protect your assets and valuables. For instance, do you have enough savings to tide you over the next tax season? There are those who’ve gone bankrupt when the IRS decided to pound them with penalties along with their accumulated back taxes.
#3 Foolish financial mistakes or other decisions gone wrong
We can certainly blame the heavens or bad karma for our losses, but many causes for bankruptcy do stem from our own actions. The rest of the reasons I can think of, such as divorce, bad relationships, massive debt, overextension, gambling, self-destructive behavior, business and job losses are within our control to avoid or even just to mitigate. Being on any side of a financial crime will take you down as well, so don’t get into that suspicious sounding investment, join in that Ponzi scheme, nor even think of perpetrating something that sounds remotely too good to be true. As they say, there’s no such thing. Either way, you’re bound to lose big.
To put things into perspective, here are some interesting facts about bankruptcy, thanks to Bankruptcy Action. I’m reprinting some of their data here.
by Silicon Valley Blogger