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The Top 5 Reasons People File For Bankruptcy In Rhode Island

Top 5 Reasons People File Bankruptcy

There are many reasons that people choose to file bankruptcy, but some are far more common than others. Over the years the stigma of filing bankruptcy has lessened as people have become to realize that bankruptcy is a financial tool. While it is not the first choice when someone is in financial distress, it’s sometimes the best choice.

The reasons that people file bankruptcy may not surprise you, but you should know that you are not alone if you find yourself in a position where bankruptcy is your only choice. Contact us to speak with an experienced bankruptcy lawyer.

Bankruptcy - Warwick, Rhode Island 02886

1. Substantial Medical Expenses

The American Journal of Public Health published a study in 2019 showing that more than 65% of bankruptcies are caused by medical issues. This might mean the inability to pay large bills for unexpected procedures or the need to take time off from work due to an illness or medical condition. Even those who have health insurance often have high copays and deductibles. That, coupled with job loss, can have a huge impact on financial health and be a burden that some people can’t recover from.

A serious illness or injury can lead to hundreds of thousands of dollars in medical bills in Rhode Island. Bills that are so substantial can completely obliterate retirement and savings accounts, as well as home equity and college education funds. Once there is no more money to draw from, bankruptcy can often be the only avenue left.

But it is unwise to use retirement funds or home equity to pay medical bills as those assets are protected in bankruptcy. If you decide to use your equity or retirement funds you must absolutely be sure that it will solve your financial problems and that you don’t deplete these protected assets trying to avoid bankruptcy only to find after you deplete them that you have to file anyway.

2. Loss of Employment

Whether you are fired, laid off, or choose to resign from your job, if it takes too long to find other employment and you haven’t saved enough to get you through the period, you can find yourself in a mathematical tar pit.  No matter how much you make in the new job the interest and principal you need to pay on your debts may be more than your disposable income.

While some individuals may be able to live off severance packages or savings, that is hardly the case for everyone. Many people are fired or laid off suddenly and either didn’t have the ability or opportunity to save enough for such an occurrence or just failed to do so.

People who don’t have savings may find themselves using a credit card to pay off necessary bills, which only adds to the debt and can create even larger problems when the interest starts piling up.  The Bankrate 2019 Financial Security Index Poll indicates that three of every 10 Americans don’t have enough savings available to recover from losing a job or having another financial emergency.

It also doesn’t help that when you are unemployed you usually lose your health insurance. COBRA coverage insurance is available but it can extremely expensive and drain what resources someone does have. If a person cannot find a new source of employment quickly, it can be difficult to recover and catch up on the bills that have had to be pushed to the back of the priority line.

3. Excessive or Poor Use of Credit

Not everyone does a good job of controlling spending. People frequently make the mistake of thinking that if a creditor will loan them money then they must be able to afford it. That’s not necessarily true and you need to do your own budget analysis to see if you can afford a credit card, personal loan, etc before you accept it.   


Installment debt, credit card payments, auto loans, and other payments can all add up and you can quickly arrive at the point where you can’t even make the minimum payments on the debt that you have, let alone have any hope of paying them off completely. Eventually you may have to choose between keeping current with your debt and paying for things like car payments, mortgage payments, food, etc. That’s when bankruptcy may become the best choice. Unless you can reasonably expect an increase in your income to cover your monthly bills and the credit cards the monthly deficit eventually overcomes you.

4. Separation or Divorce

Ending a relationship can cause a severe financial strain on both partners in various ways not the least of which is dividing the incomes of one household to pay the expenses of two. Then there are legal fees, which can be quite expensive, as well as dividing up assets, determining child support and alimony, and just the simple task of keeping two households afloat after a separation. All of these things can drain your bank account quickly and often leads to bankruptcy.


Some people will find that only the legal fees are so high that bankruptcy is required. Others may experience wage garnishment for alimony or child support that makes it difficult to pay all the bills. If one spouse doesn’t pay the support required of them, this can have financial repercussions for the other person. Divorce can lead to two individuals filing bankruptcy in cases where the couple, when together, could easily handle the bills.


5. Unexpected Expenses

You never know when something bad is going to happen that you could never have expected. This might mean losing property through theft or dealing with damaged items based on a natural disaster like a tornado, flood, or earthquake. Without the right insurance, a homeowner is liable for the damage and this can cause serious issues with your finances. When you add to that the fact that many homeowners have no idea that they need separate coverage for certain events, you can see how situations can get sticky fast.


Or, you know, sometimes people lose their livelihood due to a pandemic! Unfortunately, we are already beginning to see a surge of bankruptcies for people in the restaurant business.

Warwick, Rhode Island Bankruptcy Attorney

There are many reasons a person may have to file bankruptcy, but the five reasons listed above are the most common for filing bankruptcy in Rhode Island. Whatever the reason, the process can be stressful on top of whatever else is going on in a person’s life.


It’s important to work with an experienced bankruptcy lawyer to ensure your situation is handled right. Bankruptcy can be the first step to getting your life back but having an attorney help will make the entire process easier.

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