According to Investopedia these are the 9 most common ways to go bankrupt. (Don’t do them!)
1. Ignoring Identity Theft Tactics
Let’s face it, once someone has your identity, they have the keys to your financial kingdom, such as it is. It’s trivial for the scam artist to destroy your credit history he his actions are left unchecked. Here’s an article on How To Avoid Identity Theft.
2. Getting A Divorce
Perhaps the second quickest way to bankruptcy for most people is divorce. Not only are you likely to lose half of your assets, but there’s usually a great deal of expense in the actual divorce proceedings. That’s not even factoring in child support, if applicable.
Bankruptcy has been used by some as a means of avoiding alimony and child support, but in April 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The BAPCPA seeks to limit bankruptcy abuses.
3. Having (and using) Too Many Credit Cards
Consumer debt, in the form of credit cards, is incredibly damaging financially. Up until recently, it was so easy to get a new credit card when the last one was maxed out. Multiple credit cards not only let you rack up debt faster, but also ruin your credit score. If you find yourself in this situation, learn how to control your credit cards.
4. Paying Credit Debt With Credit Cards
Often times, people who have multiple credit cards find themselves playing Russian roulette with balance transfers. It starts off innocently enough. You have an $8,000 balance on your platinum card, and get an offer to open a new preferred card with 0% on balance transfers for 6 months. You figure you’ll be able to pay down the balance without interest, only life gets in the way and the balance never gets paid down. This is really a symptom of #9 below, and not changing your spending behavior. That doesn’t mean there isn’t a way to Cut Credit Debt though.
5. Buying Too Much House
We’re seeing this play out today in high foreclosure rates. Factor in the amount of borrowing people did against their homes, 2nd mortgages and ARMS, interest only payments and homes worth less than the mortgage and you’ve got a deadly bankruptcy cocktail. And that’s not even considering school and property taxes!
6. Putting All Your Eggs In One Basket
We saw this with Enron, and Madoff. Investors pile all their assets into a single investment or stock, only to be left holding the bag when the hole thing goes up in smoke. This is one of the reasons diversification is so important – it’s about risk, not just return.
7. Not Building An Emergency Fund
Living paycheck to paycheck leaves no room for error. All it takes is one little visit from Murphy and your sunk! Emergency funds are essential !
8. Not Understanding What Your Investments
Short selling, options, trading on margin… these are playing with fire. If you don’t understand the methods and the risks, you will get burned.
9. Failing To Address Your Current Financial Situation
Ultimately, what dooms most people to bankruptcy is a failure to recognize and change bad behavior regarding money. Continuously spending more than you earn is a surefire way to dig yourself into debt, and eventual bankruptcy. That’s why the single most important step to getting out of debt is to realize you have a problem, and resolve yourself to changing your behavior to not only get out of debt, but stay out.
[...] How to go Bankrupt in 9 Easy Steps According to Investopedia these are the 9 most common ways to go bankrupt. (Don’t do them!) 1. Ignoring Identity Theft Tactics Let’s face it, once someone has your identity, they have the keys to your financial kingdom, such as it is. It’s trivial for the scam artist to destroy…… [...]