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An Injury, Illness, or other Medical Event Frequently Result in Financial Trouble
A medical event that requires hospitalization, rehabilitative therapy, and other disruptions to an individual’s life is likely to create financial turmoil. Plenty has been said about the costs of obtaining medical care in California and throughout the United States; the simple fact of the matter is that most people are a single injury or medical event away from tens or hundreds of thousands of dollars in medical bills.
Further exacerbating the financial stress that is caused by huge medical bills is the fact that most people who experience a serious medical event will need time to recover and heal. This frequently means time off of work. Even if the worker and his or her family are able to draw payments from disability insurance or other sources, these payments are typically only a percentage of the worker’s regular pay.
Divorce of Other Family Issues also Frequently Precede Financial Turmoil
According to a 2004 Harvard study detailed in the book, The Two Income Trap, the American middle-class family is stretched financially thin. Since the book’s publication, many of the problems it identified have actually gotten worse. Costs for child care, health care, education, and all the other goods and services needed to raise a middle-class child continue to increase. Thus, many and probably most families now have both parents in the workforce. Today’s families earn about 75% more than the single parent earner families of a generation or two ago. And yet, today’s two-income family actually has less discretionary income than a family with a single earner from the previous generation.
Thus, disruptions to the family through a divorce or other means are frequently catastrophic to the family finances. Even in an amicable divorce, the family will still attempt to fund two households on income that used to only pay for one home. However, the problem goes even deeper than this. With both parents in the workforce, additional costs arise ranging from transportation and car insurance to child care expenses.
Excessive Use of Credit Cards Is a Common Reasons for Serious Debt ProblemsExcessive use of credit cards that typically carry high balances up to credit limits across multiple cards is also a frequent cause of significant financial difficulties. It is quite common for people to use credit cards after the loss of a job or from other difficult financial circumstances to bridge the gap and make ends meet. Unfortunately, and all too often, the difficult financial situation does not turn around as quickly as the individual expected, and it becomes more and more difficult to service the debt. Eventually, the individual may miss one or more payments and penalty provisions kick in. Few people have the ability to make payments sufficient to cover double-digit interest on tens of thousands of dollars in debt. Even fewer people will be able to both service the interest and pay down the principle in a timely manner. Therefore, when it feels as if no amount of hard work allow you to catch up, bankruptcy often provides a pathway to a fresh financial start.
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