• Bankruptcy occurs when a person or business is unable to pay off their debts. When a person declares bankruptcy, he must go through a legal process to file the bankruptcy. Individuals typically file for Chapter 7 bankruptcy, where assets are liquidated and doled out to creditors. In exchange, the person filing for bankruptcy is absolved of most debts. There are several common ways people get into debt that leads to bankruptcy.
  
  

Health Care Costs

• Health care costs are one of the leading causes of bankruptcy for individuals. According to BusinessWeek, a Harvard study found that "medical problems caused 62% of all personal bankruptcies filed in the U.S. in 2007." Health care can be extremely expense, especially if unforeseen illnesses occur. For instance, cancer treatment costs can easily cost tens of thousands of dollars a year. For individuals without health insurance, such illnesses may result in taking on large personal loans that they are unable to pay off. Even individuals with health insurance can get into debt due to health care costs. Insured individuals still need to pay deductibles and possibly coinsurance. Coinsurance is a proportion of medical costs that individuals must pay themselves, which is required by some insurance plans. Even if your coinsurance rate is 10 percent, expensive procedures can require large out-of-pocket payments that can lead to massive debts.
  
  

Personal Spending and Credit Card Debt

• Poor personal spending habits are a common cause of bankruptcy. The practice of buying unnecessary goods and services with credit or loans tends to erode wealth over time and can lead to an accumulation of debt. Credit cards are especially dangerous, since they tend to carry very high interest rates and are very easy to use. Credit card payment minimums are often set very low so that continued use of a card will increase balances over time even if you continue to make minimum payments.
  
  

Loss of Income

• Dramatic changes in personal income such as losing a job are common causes of bankruptcy. You might take on personal loans and credit card debt with the expectation that you can pay it off with your wage or salary, but if you lose that income, you may be stuck with debts that you can't pay off. Similarly, if you are a contractor or run your own business and your profits suddenly fall due to a slow economy, you may be unable to pay off debts.