Bankruptcy and Your Taxes

We just entered a new year and it’s already tax season, but not everybody expects a tax refund. Something unexpected? Bankruptcy. It is a reality that can happen to the best of us. An event as simple as a fender bender can plummet an individual into debt. It can take years to recover after filing for bankruptcy. Knowing the common causes of bankruptcy can contribute towards prevention. Some common causes for debt and bankruptcy include: 

·      Medical Expenses

Medical costs account for over half of personal bankruptcies. Harvard University conducted a study citing that 62 percent of personal bankruptcies were due to medical expense reasons. A whopping 72 percent of victims who filed for bankruptcy caused by medical expenses were insured. This debunks the idea that only the medically uninsured fall into after an injury or illness. 

·      Divorce

When a divorce occurs, issues arise involving joint bank accounts and expenses. If a joint account was opened when the couple was together, then each individual will inherit a portion of that account when separated—even in debt. 

·      Job Loss

Job loss can happen regardless of your status at a company. Losing your main source of income can quickly deplete a savings account and lead to credit card debt. This can also lead to the annulment of job benefits such as insurance. 

·      Unexpected Expenses

Accidents happen, which can lead to credit debt and eventual bankruptcy. An unexpected car accident, home injury, or natural disaster can occur at any time. Such unexpected issues can drain bank accounts and run credit dry in no time. 

Expect the unexpected, expect the worse, and always be sure that you have an emergency fund. A Phoenix bankruptcy can happen to the best of us and it can hit the hardest if you’re unprepared. 

Co-written by Brian Dault and Elise Childers for DaultLaw