Every year, more than 800,000 people declare bankruptcy in the United States. In Canada, a substantial 125,000 Canadians also became insolvent and file either a bankruptcy or a consumer proposal. There are many reasons why insolvency happens to people. These are some of the most common reasons people become insolvent in North America.
#1 Illness and Injury
Medical bills in the United States can be astronomical and people without insurance often struggle to pay them. Illness and injury can also lead people into high debt for other reasons, such as being too sick to work. That’s why medical problems also cause high debt in Canada. Just because you’re too sick to earn money doesn’t stop your expenses, even if you do have insurance.
#2 Job Loss
Many consumers are only a paycheque away from missing a debt repayment. If you’re carrying a mortgage, a car loan, and high credit card debt, often your unsecured, high-interest debt is the first payment you miss if you have to prioritize. Persistent unemployment can also mean borrowing heavily to meet basic expenses.
#3 Losing a Business
If you have to close your own business, not only do you face loss of income but you may also have depleted your savings or gone into debt personally to open your business or keep it operating through tough times.
#4 Separation & Divorce
There are more expenses involved in divorce than just lawyer fees, although those can also be expensive. You also have to deal with a split income and split expenses. Instead of sharing one roof and those costs, you will have pay for everything yourself. This can come as a shock and require some careful re-budgeting.
#5 Student Loans
People often take on student loans early in life and aren’t prepared for the reality of repaying them. Even those who are keenly aware of the size of their student loans can’t predict the job market when they graduate, and student loans can quickly become burdensome. In most jurisdictions, you can’t see debt relief on student loans until a number of years after you graduate.
While this next point wasn’t on the ‘official list’ it’s important to discuss the troubles that often are associated with home renovations. Whether homeowners come into an amount of money through gifts, inheritances or other non-regular sources of income, renovations can easily put a terrible strain on a stressful situation. Sometimes it’s not as easy as looking for great deals on water filter products to simply find the saving in the middle of reno, and often it’s the unexpected surprised that cause the problems, not the well-researched product purchases.
Looking at how you became insolvent is an important part of rebuilding your finances and avoiding insolvency in the future. Whatever your reasons, you have options for getting out. You no longer have to go bankrupt in order to get out of unsecured debt you can’t afford to pay. Instead, you can qualify for a consumer proposal, an alternative to bankruptcy available in some jurisdictions.
One of the main benefits of a consumer proposal is that it does not affect your assets. Anyone with considerable equity in their home, secondary properties, or non-retirement investments should seriously consider a consumer proposal before bankruptcy. Talking to a bankruptcy trustee, now known as a Licensed Insolvency Trustee, like David Sklar & Associates can clear up the questions you have about the difference between the two processes.
Rather than selling assets to cover your debt, in a consumer proposal you pay your creditors a fixed monthly amount, even if you see an increase in your income. A consumer proposal may not be the right answer in all cases, but it’s worth considering. Talk to a bankruptcy trustee about the options available to you.