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What Causes Bankruptcy and How Does it Happen?

What Causes Bankruptcy and How Does it Happen?

No one wants to file bankruptcy, but sometimes it’s outside of your control. Understanding the causes of filing for bankruptcy and how it happens may help you prevent it from happening to you or at least help you recognize the signs so you can get the necessary help to stop it.

The Top 6 Causes of Bankruptcy

Everyone has a different reason for filing Bankruptcy or having financial trouble, but these are the top six reasons most people end up in a Bankruptcy.

Job Loss

Losing your job can be unexpected and disastrous. If you’re used to a certain amount of income and then suddenly it’s taken from you, it can be hard to keep up with your bills, let alone any debt you’ve accumulated.

When you lose your job, you most likely focus on the most important bills, such as your mortgage so you don’t lose your home, utilities to keep your electric and gas on, and money to put food on the table.

This may not leave money for much else, including paying your debt. Many people have to let their debt accumulate until the point that they can’t get by anymore and have to file bankruptcy to get the creditors and collectors off their back.

Loss of Hours

Sometimes it’s not just job loss that causes you to have financial trouble, but a loss of hours can too. If you’re used to working overtime, for example, but it gets taken away from you because business is slow, you might find it hard to keep up with your bills.

Many people do what’s called lifestyle creep. They let their lifestyle and cost of living creep up to match their income. If you’ve worked overtime for a long time, chances are you let your lifestyle creep up to meet the income and now that it’s gone, you have a hard time making ends meet.


Ending a marriage isn’t only emotionally devastating, it can be financially devastating too. Not only must you cover the legal cost of having a lawyer and paying court costs, but there’s the cost of paying your spouse any money owed.

Whether you owe a lump sum to split the house or other assets, or you have to pay alimony and child support to your spouse, it’s like paying for two households. Suddenly your bills become much harder to manage and it’s a lot easier to get yourself into debt.

If you can’t keep up with the credit card bills and collectors start crawling down your back, you might find it a lot easier to file bankruptcy and get everyone off your back so you can have a fresh start.

Natural Disasters 

Natural Disasters

Sometimes disasters are outside of your control. Whether your house burned down, you had major storm damage from a hurricane or tornado, or another natural disaster struck you and your family, it can be hard to stay ahead on your finances.

Meeting insurance deductibles, paying for expenses insurance won’t cover, and recovering everything that was lost can feel overwhelming and expensive. Many people reach for credit cards to get through these terrible times especially if their income was interrupted during the issue. 

If you can’t make ends meet while you pick up the pieces, you may have to file for bankruptcy to get some freedom and relieve the stress.

Medical Issues

Falling ill and being unable to work can be detrimental to your income. You might have disability income for a while, but it doesn’t usually equal the same amount you’re used to making. If your disability income doesn’t cover your bills, you might find yourself getting behind.

If you already had outstanding debt and now you can’t pay it, you might find yourself borrowing to pay the debts and getting further into a hole or you may rack up new debt, putting yourself in over your head for the first time.

If you can’t work for a long time, it could be hard to figure things out and you may need the fresh start bankruptcy can offer to get you out of debt.

Using Credit Cards Wrong

Using Credit Cards Wrong

Credit cards have a time and place in everyone’s life, but only if you can use them right. If you use credit cards as an extension of your income, you’re using them wrong and it could lead to excessive debt and filing for bankruptcy.

Credit cards shouldn’t be an extension of your income, but instead a way to protect large purchases, to earn rewards on everyday purchases (cashback credit cards), or a way to build credit.

If you use them inappropriately, the bills can add up fast. Making only the minimum payments leads to excessive interest accumulation and the inability to get ahead. If you can’t make the minimum payments or you’re drowning in debt, bankruptcy may be the only answer.

Is Bankruptcy your Only Option?

You may have other options than just bankruptcy, but you have to act fast. Keeping your head in the sand and hoping it all just goes away won’t help.

Talking to a professional about your situation and how you can get out of it is key. There’s no shame in getting professional advice on how to move forward from getting in over your head in debt. If you act fast enough, you may be eligible for a debt relief program or a consumer proposal.

Final Thoughts

If you are in over your head in debt and think bankruptcy may be your only option, contact us today. The professionals at EmpireOne Credit Solutions can help you understand your options. We work with you step-by-step to help you understand your debt, how to get out of it, and to put together a plan so you don’t end up there again.

It can feel isolating and scary when you’re contemplating filing for bankruptcy, but we won’t let you be alone. We’ll help you understand your options, how to move forward, and what best solutions will help you successfully get out of the situation.

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