Top Reasons People File for Bankruptcy — And How Legal Protection Can Help

Nima Asadi, Esq.
Mar 28
4 min read

Top Reasons People File for Bankruptcy — And How Legal Protection Can Help

When you hear “bankruptcy,” what comes to mind? Pop culture often paints a misleading picture: reckless spenders maxing out credit cards on luxury goods or gambling away savings. The reality is far different. At United Legal Advocates, LLP, we’ve helped many clients navigate financial hardship, and their stories reveal a truth: good people end up in bad debt through no fault of their own. Life’s unexpected challenges—job loss, medical emergencies, divorce, and more—can push anyone to the brink. In this blog post, we’ll explore the top reasons for overwhelming debt, debunk myths, and show how bankruptcy can offer a fresh start. If you’re struggling with debt, you’re not alone—and there’s a path forward.

The Real Causes of Debt: Life’s Unpredictable Storms

Bankruptcy filers aren’t stereotypes. They’re nurses, teachers, engineers, retirees, gig-economy drivers, stay-at-home parents, and even fellow attorneys. Debt doesn’t discriminate by profession, income, or background. Based on decades of experience, here are the most common triggers we see pushing good people into financial distress:

1. Job Loss or Reduced Income

A single layoff can turn your financial world upside down. One day, you’re covering your mortgage, car payments, and groceries. The next, your income vanishes while expenses remain fixed. Even a reduction in hours—common in industries like retail, hospitality, or gig work—can create a domino effect. Savings dwindle, and credit cards become a lifeline. According to the Bureau of Labor Statistics, over 20 million Americans faced job losses during the 2020 pandemic alone, and many still grapple with underemployment. Bankruptcy attorneys see this pattern daily: hardworking people blindsided by an unstable economy.

2. Medical Crises

Medical debt is a leading cause of bankruptcy in the United States. Even with insurance, families face crushing deductibles, copays, and out-of-network bills. A single hospital stay can cost tens of thousands of dollars, and chronic conditions or unexpected injuries—like a car accident or cancer diagnosis—can rack up six-figure debts. The Kaiser Family Foundation reports that 1 in 4 Americans with health insurance still struggles to pay medical bills. For the uninsured, the burden is even heavier. When medical costs spiral, Chapter 7 or Chapter 13 bankruptcy can help discharge or reorganize these debts, offering relief.

3. Divorce or Separation

The emotional toll of divorce is hard enough, but the financial fallout can be devastating. Legal fees, alimony, child support, and the cost of maintaining two households can shred even the most carefully planned budget. Divorcing couples often turn to credit cards or loans to cover these expenses, only to find themselves drowning in high-interest debt. Our firm has guided countless clients through bankruptcy after divorce, helping them rebuild their financial lives with a clean slate.

4. Pandemic Fallout

The COVID-19 pandemic exposed the fragility of many Americans’ finances. Deferred rent, ballooning credit card balances, and paused student loans seemed manageable during moratoriums—but when payments came due, millions were unprepared. Small-business owners, freelancers, and service workers were hit hardest, with many tapping personal savings or credit to survive. As the economy recovers, debt relief options like bankruptcy remain critical for those still grappling with pandemic-related financial strain.

5. Natural Disasters or Property Damage

Hurricanes, floods, wildfires, or even a burst pipe can wreak havoc on your finances. Insurance often falls short, leaving homeowners and renters to cover repairs with high-interest loans or credit cards. FEMA assistance, when available, rarely covers the full cost of rebuilding. For those in disaster-prone areas, bankruptcy protection can stop creditor harassment and provide a structured plan to manage debt while recovering.

6. Small-Business Failure

Entrepreneurs pour their hearts—and wallets—into their businesses. But when a small business fails, personal finances often take the hit. Many owners sign personal guarantees on business loans or lines of credit, meaning they’re personally liable if the venture collapses. The Small Business Administration notes that over 50% of small businesses fail within five years, leaving owners with debts they can’t escape. Bankruptcy for small-business owners can discharge personal liability and protect assets, paving the way for a fresh start.

Debunking the Bankruptcy Stigma

The stigma around bankruptcy keeps many from seeking help. But here’s the truth: bankruptcy is a legal tool, not a moral failing. It’s designed to protect people overwhelmed by debt through no fault of their own. Our clients aren’t “irresponsible”—they’re everyday Americans blindsided by life’s challenges. Filing for Chapter 7 bankruptcy can eliminate unsecured debts like credit card balances and medical bills, while Chapter 13 bankruptcy offers a repayment plan to catch up on secured debts like mortgages or car loans.

Why Choose United Legal Advocates?

At United Legal Advocates, we understand the stress of financial hardship. Our experienced bankruptcy attorneys have helped clients across California achieve debt relief and regain control of their lives. We offer:

Personalized Guidance: Every case is unique. We’ll analyze your finances and recommend the best path, whether it’s Chapter 7, Chapter 13, or an alternative solution.
Compassionate Support: We’re here to listen, not judge. Our team will walk you through the process with clarity and empathy.
Proven Results: With decades of experience, we’ve helped many clients eliminate debt, stop foreclosures, and protect assets.

Take the First Step Toward Debt Relief

If you’re facing overwhelming debt, don’t wait for the storm to pass. Bankruptcy law offers powerful tools to rebuild your financial future. Contact United Legal Advocates today for a free consultation. Call us at (949)234-8212 or fill out our online contact form to schedule an appointment. Let us help you find peace of mind and a fresh start.

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