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How people often end up in debt

Some people have a perception that those who go through bankruptcy are all irresponsible and are taking the “easy way out” of their financial problems. As with any stereotype, the truth is usually much more complicated.

One common reason that a household must turn to bankruptcy is because of a sudden reduction in income. Many families have little savings. A spouse losing his or her job can quickly put the household into a hole, forcing them to rely on credit cards to get by. Having to quit a job to care for a sick loved one can have the same effect.

Similarly, a rapid increase in expenses, because of medical bills or college tuition, to give two examples, can put a household into a debt crisis.

Self-employed people often have little to no income while trying to establish their business. They may run up large credit card bills, in the hope that they will pay them off when the business takes off. But that sometimes takes longer than they expected, or the business fails. The person is left with huge debts with little means to pay them.

Finally, some people get seduced by credit card company offers like raised credit limits and “convenience checks.” Perhaps because of limited income or inexperience, they believe they will be okay as long as they make the minimum payment each month. But with the huge interest companies charge -- often 22 percent or higher -- after a while, the customer cannot make the minimum payment anymore. Late fees and other penalties accrue, so that paying down the actual debt becomes virtually impossible.

Most people do their best to pay their bills, but sometimes they get overwhelmed by circumstances in their lives. Bankruptcy is a way for them to make a fresh start.

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