Why Do People File for Bankruptcy?
If you ask 10 bankruptcy lawyers why their clients file for bankruptcy, you are likely to get ten different answers. I ran across this post from the Silicon Valley Blogger on the Digerati Life blog that offers the following reasons:
- Bad luck – unexpected illnesses, accidents, crime, unexpected job loss
- Lack of preparation – lack of emergency funds, insufficient insurance, poor estate planning
- Bad Financial Decisions – divorce, bad investments, gambling, falling for something that sounds too good to be true
Here at Clark and Washington, we probably see more bankruptcies resulting from medical problems and related bills than from any other cause. Our #2 reason would be bad decisions – such as buying too much house or a too-expensive car.
Of course some bad decisions are worse than others. Take, for example the case of Tony Alleyne in England. Tony is an interior designer and he came up with the idea of creating a house who came up with the idea of decorating the interior of his house as an exact replica of the Starship Enterprise from Star Trek – The Next Generation. Tony believed that fellow Trekkies would rush to hire his firm to redecorate their houses in a Star Trek motif.
After going through several hundred thousand dollars (and 1 wife), Tony discovered that this Trekkie market did not exist and that he had spent almost 10 years pursuing a business plan that had no chance for success.
If you have any thoughts about what causes bankruptcy, we'd love to hear from you. If you want to replace your refrigerator with a "warp coil" let us know as well – we can set you up!
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Comments on Why Do People File for Bankruptcy?
This is a bad example of a bankruptcy. You should make fun of somebody else.
The flat in question sold for £425,000 last year (see boingboing.net) or about $850,000 dollars – five times the apartments appraised value.
That comes to $85K yearly income, not bad I think for an out of work DJ. How much did you make from your hobby last year? I bet it was a little less than Tony Alleyne did.
I realize this story could have had a less happy ending and Tony probably had to make it through some lean times, but give him credit for his success.
I too have a crazy dream, one involving running an electric car manufacturing company, and sadly have never had the cojones to give it a try. I praise Tony for his courage. I'm too scared of going bankrupt.
I am not making fun of anybody. Bankruptcy is a serious step and no one should pursue bankruptcy unless it is a last resort.
I am glad that Tony was able to sell his flat for a profit. However, I suspect that his profit is more a function of the real estate market where he lives than his decorating skills. My point is simply that people sometimes decide to spend money on pursuits based on their emotions rather than on sound financial reasoning. Here, Tony invested a lot of time and money into a business concept (redecorating houses in a Star Trek theme) before investigating whether a market existed. In my view, that was a bad decision, even if there was a lucky ending.