5 Common Financial Mistakes That Lead to Bankruptcy

Bankruptcy can offer a fresh financial start, but many people wonder how things got to that point in the first place. The truth is, financial hardship often builds slowly over time, and it’s usually the result of a few key missteps that go unnoticed until they become overwhelming.

By recognizing and avoiding these common financial mistakes, you can protect yourself from the stress of serious debt and the potential need to file for bankruptcy down the line.

1. Relying Too Heavily on Credit Cards

Credit cards can be a useful tool, but when used for everyday expenses without a solid repayment plan, the balances can quickly spiral out of control. High interest rates make it difficult to pay off the principal, especially when only making minimum payments.

How to avoid it:

Stick to a monthly budget and only charge what you can afford to pay off in full. Use credit responsibly and avoid using cards to cover shortfalls in income.

2. Living Beyond Your Means

Spending more than you earn is a common trap, especially with easy access to credit. Over time, this leads to accumulated debt and limited savings, making it difficult to recover from financial surprises like job loss or medical bills.

How to avoid it:

Track your income and expenses honestly. Adjust your lifestyle to fit your budget and prioritize building an emergency fund, even if it’s small to start.

3. Not Having (or Using) an Emergency Fund

Unexpected expenses: car repairs, medical bills, job loss, can devastate your finances if you’re not prepared. Without a cushion, many people turn to credit cards or payday loans, which only create more debt.

How to avoid it:

Aim to save at least 3–6 months of living expenses. Start small, automate your savings if possible, and avoid dipping into it for non-emergencies.

4. Ignoring Medical Debt

Medical bills are one of the leading causes of personal bankruptcy in the U.S. Even insured individuals can face large out-of-pocket expenses after a serious illness or injury.

How to avoid it:

Open all bills and review them for accuracy. Work with healthcare providers on payment plans, and don’t wait until accounts are sent to collections. If bills feel unmanageable, consider speaking with a financial counselor or attorney.

5. Delaying Help with Debt Problems

Many people wait too long to seek help, hoping things will get better or that they’ll somehow catch up. Unfortunately, delaying action can make the situation worse, missed payments can lead to collections, lawsuits, or wage garnishments.

How to avoid it:

If you’re struggling to keep up with debt, reach out for help sooner rather than later. A conversation with a qualified attorney can help you understand your options and protect your financial future.

Final Thoughts

No one plans to file for bankruptcy, but knowing what causes it can help you avoid it. If you’re already overwhelmed by debt, it’s not too late to take control. Bankruptcy exists to give people a second chance.

With over 35 years of experience, Attorney Greg Kornegay helps individuals throughout Wilmington and Southeastern North Carolina find real solutions to difficult financial situations. Whether you’re considering bankruptcy or just need guidance, we’re here to help. Contact us today to schedule your free consultation.