Avoid These Mistakes That Will Lead to Household Bankruptcy

Shannon Quinn - April 30, 2021

Every year, an estimated 1.5 million Americans file for bankruptcy. And with all of the economic turmoil happening in the world right now, it’s likely that that number is going to dramatically rise in the future. This is a terrifying prospect for a lot of people. And if you’re one of the millions of people who lost their jobs during the pandemic, you might be worried that someone in your household could end up in bankruptcy. However, it’s truly not the end of the world. I promise you that you can get through this. Here at Home Addict, we’ve gathered some tips on how you can change your lifestyle at home to avoid ending up in bankruptcy.

Even if you have a job, that doesn’t save you from bankruptcy. Credit: Shutterstock

30. Assuming That a Job is All You Need to Avoid Bankruptcy

Society seems to have this preconceived notion that people who declare bankruptcy must be unemployed. But the surprising reality is that the vast majority of people who declare bankruptcy have a job, and have been working steadily for years before their finances got out of hand. According to research conducted by Stanford University, most people who declare bankruptcy had a job. On the other hand, people who were self-employed, retired, or on unemployment are far less likely to declare bankruptcy. Why is that?

This is most likely because if you’re unemployed, building your own business, or living on a fixed retirement income, it’s blatantly obvious that you need to live on a tight budget. You have it ingrained in your mind that you can’t overspend. But when you’re working, it’s a lot easier to accidently live beyond your means.

You should try to have a plan on how to get out of debt. Credit: Shutterstock

29. Not Having a Plan on How to Be Debt-Free

One of the first steps in avoiding bankruptcy and getting finances back on track is to have a game plan. I highly recommend Dave Ramsey’s book called Total Money Makeover. He also has a YouTube channel where he goes over some of the steps in his process. This is very much tough love advice. He won’t sugar coat things by a long shot. But sometimes, you need to hear it.


I personally like Dave Ramsey’s “snowball method”. This is where you take one of the smallest debt balances, and pay it off. It feels like a really great accomplishment. Once you know how amazing that feels, it gives you the motivation to keep going. It’s like a snowball getting bigger and bigger as it rolls down the hill. This isn’t going to happen overnight. But as long as you have a plan and stick to it, you’ll eventually be debt free.

So many people rush to Costco, but it’s not always the best option. Credit: Shutterstock

28. Assuming That Buying in Bulk is Better

You have probably heard the advice that buying in bulk is cheaper, and that it will save you money in the long run. And with people stockpiling due to the pandemic, bulk is more popular than ever. Big box stores like Costco and Sam’s Club charge hefty memberships fees just so that you have access to these savings and coupons. However, this advice is actually very misleading. In most cases, buying in bulk actually causes you to lose money, compared to simply being strategic about where you shop for certain items. For example, my brother got a Costco membership, and ended up spending $500 for his new apartment. In the end, he had so much stuff, he couldn’t even use it all. He had to give a lot of his stuff away before it expired.


Personally, I got into couponing a few years ago so that I could help my family save money on basic household products. On TV shows like Extreme Couponing, they make it seem really intimidating, but it’s actually easy once you get the hang of it. The only math involved is addition, subtraction, and percentages. So if you’re decent at elementary school arithmetic, it’s something literally anyone can learn. All I need to do is check coupon blogs like The Krazy Coupon Lady once a week for sales, and I know what steps to take to get items for free or cheap. (They even do the math for you ahead of time.) For the past few years, I have been getting things like toilet paper, toothpaste, paper towels, shampoo, laundry detergent for free every single month.

Don’t use your credit cards for basic needs like groceries. Credit: Shutterstock

27. Relying on Credit Cards For Your Basic Needs

One of the worst traps that anyone can fall into is relying on credit cards for their basic needs. According to Forbes, 70% of people who lost their job due to Covid-19 had to start paying for their basic needs on credit cards. And even with people who kept their jobs but had their hours cut, there is a 60% increase in people getting into credit card debt. Our world is in more debt than ever before. So I understand that this advice is a lot easier said than done. However, it’s crucial to work towards getting out of this cycle. Credit card interest is so high, you will likely end up in debt for years, or forced into declaring bankruptcy.


This one is tricky, because I completely understand how difficult it is to get yourself out of the trap of relying on credit cards. I was raised in a household where my parents did this with almost everything they bought. Throughout the week, my mom put her purchases on the credit card, and then paid off the minimum due at the end of the month. But they are now 65 years old and still in credit card debt with cards they have had for decades. When I was young, I followed in their footsteps. The only way I was able to get out of the cycle in my 20’s was to find a job where I could make more money, and spend less. I had to cut up my credit cards to avoid the temptation completely, and only buy things with cash.

A household budget can help prevent bankruptcy. Credit: Shutterstock

26. Never Making a Household Budget

Pretty much every finance article on the planet will tell you to make a budget. You’ve heard it so often, you might even choose to skip this bullet point. It’s kind of like the advice that in order to lose weight, all you need to do is eat vegetables and exercise. This is the honest truth, but people hear it so often and yet choose to ignore it. Making a budget is simple. You write down how much money you make every month, and create a list of your monthly expenses. Once you have those numbers down on paper, it becomes easy for you to see how much money is left at the end of the month.


The reason why a lot of people choose not to make a budget is because it makes them upset. It’s incredibly difficult to be honest with yourself and look at your financial situation for what it really is. Or, they think it’s good enough that they pay their bills on time and have some money left over to enjoy. What a lot of people seem to ignore is that you also need to take your future goals in mind when you make a budget. If you ever want to save for a downpayment on a house, or pay extra on your credit cards to get rid of them early, that takes some planning in a budget. And that will never happen if you continue to spend every dollar you make.

If you lie about your income, you are only going to trap yourself in a bad situation. Credit: Shutterstock

25. Lying About Income On Your Mortgage, Loan, or Lease

When you apply for a loan, credit card, mortgage, or apartment lease, they will always ask you how much money you make. In some cases, they require proof of income, but in other cases, they take your word for it. There are also ways to doctor your paperwork to make it seem as though you have more money than you actually do. According to CNBC, mortgage fraud was up 12% in 2018. And with mortgage rates being so cheap in 2020 and people desperate to buy a house, I wouldn’t be surprised if that number has jumped since then. However, lying about how much you make it likely to end badly, and it may be the reason why you need to declare bankruptcy later on.

It can be disappointing and frustrating to know that you won’t qualify for any of these things without lying. However, these numbers are there for a reason. Financial experts have already figured out that you need to meet these qualifications in order to afford it. Even then, their estimates are still higher than what you really should do. For example, most apartment complexes will require that you earn 3 times the monthly rent. So in theory, they will accept you if 30% of your income can go towards the lease. But experts say the number needs to be more like 20 to 25% in order to avoid bankruptcy. In reality, most people are pushing it closer to 50% of their income. When you lie about what you can actually afford, you hurt yourself in the end.

It’s never fun to find out your account is in the negative. Credit: Shutterstock

24. Allowing Your Bank Account to Go Negative

One of my first full-time jobs was working as a bank customer service representative. The number one thing people called about was the fact that their account suddenly ran out of money, or went in the negative. Each of those negative fees cost $35, and they needed to be repaid within two weeks, or they doubled. A lot of people ended up being so far into the negative, they were losing a couple hundred dollars out of every paycheck. It was awful, and emotionally painful for me to see this happening to people. This is predatory, and a law was passed in 2010 to make it illegal for banks to charge so many overdraft fees. However, they have only found loopholes around how to continue doing it, even today.


As someone who worked for the bank, I completely understood why this happens to people so often. And I understood how banks get around the law to continue to take advantage of people. Transactions can sometimes take up to 3 days to post on your account. So you might look at your balance and assume that it’s okay to spend, but forget that you paid a large bill recently. The one and only way to truly protect yourself is to track your spending, and make a budget. Banks try to paint overdraft protection as a good thing, in case of emergencies. But you should always opt out of overdraft protection. It may be embarrassing to have your card declined at the store. However, it’s much, much worse to end up in a cycle of debt to the bank.

Have you signed up for too many credit cards? Credit: Shutterstock

23. Getting Roped Into Credit Card Signup Bonuses

Credit card sign-up bonuses are so tempting. I’ll admit that I love looking at airline miles blogs like The Points Guy and seeing all of the different perks that you can get by signing up for a new credit card. However, if you are struggling with your finances, you should avoid these like the plague. As I mentioned earlier, you should strive to pay for your purchases in cash if you want to prevent yourself from declaring bankruptcy.


Many of these cards will have a good deal when you first sign up, but they have high interest rates or membership fees around the one-year mark. Just like signing up for monthly subscriptions, you often forget to cancel the card before it’s too late. This ends up becoming a situation that’s very difficult to get yourself out of.

When you find out your credit score, it helps you improve your finances. Credit: Shutterstock

22. Never Checking Your Credit Score

One of the easiest ways to make sure that you keep your finances on track is by regularly checking your credit score. Websites like Credit Sesame can give you a free credit score within just a few minutes. But you should also get a credit report once a year to make sure everything is as it should be. Identity theft has become a huge issue over the past few years as more and more people put their personal information online.

Once you know your credit score, it helps you gauge your current financial wellness. Credit Sesame also gives you some personalized recommendations on what you can personally do to fix your credit. Just like the “snowball method”, seeing your credit score go up every month is a really gratifying feeling. This can help motivate you to keep going, and make things better.

People at call centers are there to help you. Credit: Shutterstock

21. Never Calling Your Credit Card Companies

Most people are terrified to call their credit card company, especially if they are late with a payment. People seem to think that someone on the other line is going to scold or yell at them. This fear holds people back from actually handling the situation in the way that they need to. In reality, you’re calling someone who deals with this same sort of situation every single day. They are not there to judge you. It is literally their job to help you with your payment.

So if you call and let them know that you can’t make a payment on time, they are likely to work with you. Most credit card companies have a policy that they will allow you to be up to two weeks late, so long as you notify them ahead of time. Some companies have extended that courtesy for an entire month because of the covid-19 pandemic. But if you ignore the problem and hope that it goes away, it only gets worse. Remember that it’s better to work together with your loan and credit card companies. Let them know that you plan on making a payment, It’s just tough right now. As long as they know that you’re trying, there are far less likely to take you to court.

Broke? Bankrupt? Is that really rock bottom? Credit: Shutterstock

20. Assuming that Bankruptcy is the Same as Rock Bottom

A lot of people hear the word bankruptcy, and they think about it being a symbol that you lost the game. In Monopoly, going bankrupt is the absolute worst thing you can do. And in the dictionary, bankruptcy is called “financial ruin”. It makes you feel like a loser. But in reality, bankruptcy is nothing like that at all. It’s just words on paper. In a lot of cases, bankruptcy is the best option for people. In fact, I’ve met a lot of people who should declare bankruptcy, but they never do, because they perceive it as this awful thing. What it’s really doing is alleviating debt from your record, and giving you a clean slate. We’re not living in the Victorian Era where people went to debtor’s prison. I promise- it’s going to be okay.

Throughout my adult life, I have worked in multiple jobs that are adjacent to helping people with finance, real estate, law, and banking. Because of this, I have met several people who have declared bankruptcy. Sure, it was incredibly stressful for them. But they came out on the other side being more educated about their finances than they were before. Yes, it makes it a lot more difficult for you to get yourself back on your feet. It takes 7 years before the bankruptcy is taken off of your credit report. During that time, you most likely can’t take out new credit. However, there is still so much you can do. It eventually gets better.

Minimalists aim to only buy the things they need in a sustainable way. Credit: Shutterstock

19. Living Beyond Your Means

This point is so obvious, it almost doesn’t need to be said. But if you live beyond your means, you’re going to eventually end up in bankruptcy. It’s very simple. You can’t spend more money than you actually earn in a year. And yet the majority of Americans are doing just that. A whopping 78% of people in the United States are living paycheck-to-paycheck.

A lot of this isn’t your fault. Advertising is so alluring, they make it seem affordable. You may also be experiencing peer pressure from family and friends. Before you blindly trust someone who is trying to sell you something, do your own math. Figure out if you can actually afford this thing you want. And if they answer is “no”, you need to swallow your pride and walk away.

Learn to figure out your wants versus your needs. Credit: Shutterstock

18. Mistaking “Wants” as “Needs”

At the end of the day, people really only need a few key things to survive and function in society. They need food, shelter, transportation, and utilities. That’s it. Not much has changed about our needs for survival since ancient times. Except now, we sometimes need to travel farther for work, which provides us with money to get these needs. And in today’s world, the Internet has been deemed a utility, because it’s now essential for many people to work from home. Clothes are also essential, but most Americans have plenty of clothes in their closet, already. Beyond these few things, everything else is a “want”, not a “need”.


So when you say that you “need” your Netflix, Peloton, and Starbucks, that’s not really true. These are comforts that make your life better. But you could just as easily rent free movies from the library, ride your bike or jog at the park, and make your own coffee and tea at home. Once you really ingrain that into your lifestyle, you’ll begin to cut back on spending.

Lower your household costs if you want to avoid bankruptcy. Credit: Shutterstock

17. Keeping the Same Household Costs

If you have recently experienced a job loss or your boss is cutting back on your hours due to the covid-19 pandemic, you really have no choice but to cut back on your household spending. There is no telling how long our economy is going to suffer. So the best we can do for ourselves is to spend less money. Very few people can afford to maintain our lifestyles from 2019 anymore. So if we’re unable to pivot, it means many of us inch closer to bankruptcy.


The definition of “cutting back” is going to mean something different to everyone. For some people, you may need to get a smaller apartment, or move back in with your parents. Maybe your household can only share one car payment instead of two. The best thing to do is make a budget, and scale back on the things that are not absolutely necessary.

If you’re struggling financially, it’s okay to reach out for help. Credit: Shutterstock

16. Refusing to Ask For Help

Billionaire businessman John Paul Dejoria became homeless twice before he found his fortune. During an interview, he said that the stupidest time in his life was when he was afraid to ask for help. He could have avoided so much pain and suffering if he had just told his mom how he had fallen on hard times, and moved back home while he got back on his feet. But he had so much pride, he chose to live in his car, instead.

Sure, it worked out for John Paul Dejoria in the end. But it wouldn’t have for a lot of people. Huge tragedies in your life like homelessness, bankruptcy, foreclosure, can often be avoided if you simply swallow your pride and ask for help. If you don’t want to involve your family, you can get advice from a credit counselor for free.

Living paycheck to paycheck can put financial stress on your household. Credit: Shutterstock

15. Being Satisfied With Living Paycheck to Paycheck

Saying that you should stop living paycheck to paycheck to avoid bankruptcy is easier said than done. In fact, it’s kind of a slap in the face, right? You can’t stop struggling by waving a major wand. Back in 2019, Charles Schwab conducted research that found that 59% of Americans were living paycheck to paycheck…And that was before the pandemic. Now, that statistic is much worse. So you’re far from alone.


However, in times like these we need to adapt to our new environment and evolve in order to survive. Everyone in my inner circle experienced some form of layoff, unemployment, or less income this past year. And yet all of us found a way to pivot. This was not easy. We all struggled. But in the end, many of us are coming out the other end being in a better financial situation than we were before. The only way you can stop living paycheck to paycheck is to change your lifestyle, get a better job, and make more money. For you, that may mean starting a business, or going back to school. It’s not easy. But it may be the only way to move forward.

Living alone is more expensive than having roommates. Credit: Shutterstock

14. Living Alone

Some people have a lot of pride in living alone. They feel like it’s a representation of their independence and success. However, if you’re actually struggling financially, it doesn’t make sense to continue with that lifestyle. Consider bringing in a roommate, even if it’s only for a year or two before you get back on your feet.

Obviously, with Covid-19, living with a roommate is a lot more complicated. You don’t want to live with someone whose lifestyle doesn’t align with yours when it comes to safety and only maintaining contact with people in your bubble. Because of this, you may want to consider moving in with a family member or close friends.

The healthier you are, the less likely you’ll end up declaring bankruptcy. Credit: Shutterstock

13. Not Making Health a Priority

One of the biggest issues in the United States is our inadequate healthcare system. A Harvard study shows that a whopping 29% of bankruptcies are only due to an overwhelming amount of medical debt. Another 56% of bankruptcies included some kind of medical debt in their grand total along with credit cards. What does that tell you? Obviously, number one; get health insurance. If your job doesn’t offer it, sign up on Healthcare.gov. The one positive thing about the pandemic is that it has made health insurance more affordable. Please check this out, and don’t be afraid to call a customer service representative if you have questions.

Secondly, if you want to avoid declaring bankruptcy due to medical debt, the obvious thing to do is to take better care of your health. Eat healthy, exercise, and avoid unhealthy habits like binge drinking and smoking. If you’re unfamiliar with nutrition and how it affects your health and finances, I highly recommend watching the documentaries Fat, Sick, and Nearly Dead. This was life-changing for me, and my entire family.

If you don’t save for an emergency, you have a higher likelihood of declaring bankruptcy. Credit: Shutterstock

12. Never Saving For a Rainy Day

According to CNBC, 61% of all Americans ran out of their emergency funds in 2020. As I am writing this, it’s now 2021, and the situation is only getting worse. So I completely understand the advice to “just save money!” sounds laughable right now. But the reality is that in order to avoid bankruptcy, you need to have an emergency fund to cover you when things go wrong.


Remember that no matter how bad things get, there is always an opportunity to make money. For example, during the pandemic, there was an increased demand for delivery drivers, and Amazon was hiring like crazy. While these might not be ideal for you, it could be seen as a temporary means to an end. There are some people out there who took advantage of this, and found a way to increase their savings, rather than letting it dwindle away.

When you live in a scarcity mindset, it only makes it more difficult to succeed. Credit: Shutterstock

11. Having a Scarcity Mindset

More often than not, having a negative outlook around money, or a “scarcity mindset” only leads you down a path of making a problem worse. If you keep telling yourself that things are difficult, there is never enough money, etc., then that will always be true. Positive change is never going to happen in your life until you begin to think positively. I am a firm believer in the “abundance mindset“. Once I stopped feeling sorry for myself and began seeing things in abundance, it changed my life. I realized that the more positive and abundant I feel, the easier it is to bounce back from financial issues. Even when I’m faced with really scary challenges, I just keep going. It’s like the rewards are just beyond the horizon, like defeating a boss in a video game.


I’m sure many of you are rolling your eyes, right? Some people complain about “toxic positivity”, because they just need a minute to sulk. This is specially true here in America, where our national default seems to be encouraging rather than acknowledging sadness or feeding into the gloom. It’s okay to be sad. And it’s okay mourn what you’ve lost- whether that’s a job, lifestyle, or money. I’ve been there. But trust me when I say that it’s better to release your frustration in a healthy way, and then let it go.

If you lost your job due to Covid, get unemployment. Credit: Shutterstock

10. Refusing to Sign up For Government Assistance Programs

It’s a huge mistake to avoid signing up for the government assistant programs that are in place to help us during the pandemic. Even if you could get a new job quickly, or if you feel like you “should” be able to make it by living on your savings, just take the free money that’s available to you. By swallowing your pride, you’ll avoid getting closer to bankruptcy. For the first few months of the pandemic, I didn’t sign up for any kind of assistance from the government. It was really just about having a lot of pride. But once I contacted the Small Business Association, I was able to secure a grant (free money I don’t have to pay back!) to help my business. In retrospect, I made the right choice by filling out the paperwork to ask for help.

At the end of the day, pride does nothing for you. If you have been working all your life, that means that you have been paying taxes and contributing towards your unemployment and programs through FEMA. When you think about it that way, it’s almost like the government was forcing you to create a savings account that you’re allowed to tap into during emergencies like this. This is the mindset that I had to adopt in order to accept help, and it may help you, too. I thought about all the long hours I worked from the time that I was 14 years old. That helped me to realize that I deserve this help, and it’s the farthest thing from a free handout.

If you can’t afford two cars, you may want to sell one. Credit: Shutterstock

9. Having Multiple Car Payments Per Household

For whatever reason, Americans love cars. It’s part of our culture. Having a new car is a status symbol, and we feel that the type of car you drive says a lot about your personality. In a lot of families, every adult has their own car. Sometimes, this is actually necessary. Public transportation is notoriously unreliable here, and most people commute 10 miles or more to their job. According to Lending Tree, the average American pays $563 per month per car payment. Yikes. Now, imagine a household where you have two, or even three cars.


Car payments are to blame for millions of people’s financial difficulties. And unlike the rent and mortgage assistance we’re seeing from the government, there is no help from the government to prevent you from having your car repossessed. If you’re facing financial difficulty, it may be time for you to sell your car before it’s taken away from you. With more people working from home, hopefully you can work out a way to coordinate borrowing one vehicle per household.

Sometimes, it’s best to downsize. Credit: Shutterstock

8. Refusing to Downsize or Move to a Cheaper Location

If you’re on the edge of bankruptcy, it only makes sense for you to move to a cheaper place to live. In 2021, we’re in the middle of a housing crisis, and there is no telling how long it will continue. Moving is very expensive right now. So it’s totally understandable if you can’t find a new place to live that is actually cheaper than where you currently live.

But if you can’t actually afford your rent or mortgage, you may need to figure out a way to make that more affordable. It may mean that you need to move in with relatives, get a roommate, or even live in a trailer. This could be temporary until you get back on your feet. I personally know people who refused to leave their mansion, because they felt like they “deserved” it, and ended up losing everything to bankruptcy. It’s better to get a smaller house and maintain financial stability than to literally lose everything.

Please don’t take out a payday loan. Credit: Shutterstock

7. Falling Prey to Payday Loans

When you’re in financial trouble, you might have considered getting something called a payday loan. If you’re not aware, it’s a private company that is willing to loan you money, but you end up giving back 400% of what you borrowed. The vast majority of people who take out payday loans don’t have a college degree, make less than $40,000 per year, and are predominantly African American. Basically, they’re loan sharks who are targeting the most vulnerable communities. All you need for a payday loan is a paycheck, a checking account, and a photo ID. They will lend to anyone, even if your credit score is terrible.

People take out these loans because they think it’s a quick fix for their problems. And they already are in such bad financial straits that they may not qualify for a credit card, or a traditional loan with a bank. Even though it might alleviate your stress for a day, it’s going to make the problem ten times worse down the line. For most people who end up borrowing money, they can’t afford their payment. So then it rolls over into a new loan with the company at an even higher interest rate. For a lot of people, these payday loans force them to file bankruptcy in order to escape them. So please– don’t do it.

The more debt you have, the harder it is to live. Credit: Shutterstock

6. Having a High Debt-to-Income Ratio

Whenever you try to take out a loan, or you’re checking your credit score, they always look at your debt-to-income ratio. As in- Can you really afford this? How long will this debt take to pay off? But let’s be real. A lot of companies will ask for your income, and take your word for it. It’s easy to agree to payment plans or open a new credit card that you actually can’t afford. They’re trying to make money, and they don’t care if it ends up ruining your life in the process. You need to look out yourself, and figure out your own healthy debt-to-income ratio.

I’ll never forget what a customer said when I worked at a bank. Their account went into the negative, and they angrily said, “Why didn’t you stop me from spending? Why didn’t you call me? You’re the bank. Isn’t it your job to manage my money?” Uh…No. It’s the bank’s job to hold your money. You would need to hire an accountant to monitor your spending for you. Remember that it’s not the credit card company’s job to tell you what you can and can’t afford. It’s not the bank’s job to cut you off when you’ve had too much. It’s all on you. Don’t let it get out of hand.

Is peer pressure causing you to spend more money? Credit: Shutterstock

5. Giving In to Peer Pressure

The phrase “Keeping up with the Joneses” is famous for a reason. It’s human nature to be competitive and feel like we are achieving just as much as the next person. This has become especially true in the age of Instagram. But this habit of constantly comparing ourselves to others is a form of peer pressure. It doesn’t matter if you’re a full grown adult. We’re still going to feel pressure to be like people who are the same age as us, and this can push us to spend money we don’t actually have.

You need to look at your own personal financial situation as an objective observer. Try to take your emotions out of the situation, and just look at the math. Can you really afford it? Don’t make decisions based on what your friend can afford. Figure out what you can afford first. For example, just because two of your friends bought a house recently or went on a vacation overseas doesn’t mean that you should too.

Drinking and smoking is actually very expensive. Credit: Shutterstock

4. Maintaining Expensive and Unhealthy Habits

Did you know that 78% of former NFL players end up declaring bankruptcy just two years into retirement? This is often because they indulge in unhealthy habits, and never stop to think about how they are going to invest their money for the future. They also assume their windfall of money is going to last forever, when it’s really just a finite amount. If you’re worried about money, ask yourself how much your bad habits like smoking, drinking, and unhealthy snacks costs you every month. The average smoker spends $2,295 per year on cigarettes, and the average household spends $525 per year on alcohol. (This number is obviously much higher for people who drink regularly.) That’s a huge chunk of money going towards bad habits.

I know someone who had a great job working in the legal field. She received a huge inheritance, including two additional houses. The total value was something like $500,000. Instead of using her inheritance to pay off her mortgage and debt, she quit her job and started indulging in unhealthy habits like smoking, drinking, food, and gambling. Eventually, her husband got laid off from his job, and they lived on the remaining inheritance. They blamed the economy for not finding a new job. But she never stopped her bad habits. She lost everything, and had to declare bankruptcy. This situation is actually very common among people who get a huge windfall of money, and people who win the lottery. I look at her situation as a very slow-moving car crash. She could have hit the breaks or turned the steering wheel at any time.

You should never miss a payment towards your bills. Credit: Shutterstock

3. Missing Payments Towards Your Creditors

One of the surest ways to guarantee ending up in bankruptcy is to stop paying towards your debt. Even if you only paid a tiny amount of money towards your debt each month, it shows that you were trying. Most of the time, credit card companies will not take you to court until you have failed to make any payment for months at a time.

Call the banks, credit cards, and loan companies to see if there is an option for a payment plan. Sometimes, they will allow you to have the payment reduced down to just the interest. Then, when you get back on your feet, you can go back to making higher payments again.

If you refuse to sell anything, it’s inching you closer to bankruptcy. Credit: Shutterstock

2. Refusing to Sell or Give Anything Up

If you’re in a difficult financial situation, one of the first things you can do is to sell your valuables. Nowadays, this is easier than ever. With apps like eBay, Depop, Facebook Marketplace, Mercari, Etsy, and Poshmark, you can sell almost anything if you have an Internet connection and a cellphone. Selling things you no longer need can be a good way to make some quick cash and pay a bill. Remember that some day, when finances get better, you can always buy that thing back. Holding on to your material things is not worth the shame, regret, and stress of declaring bankruptcy.

I have been selling things on eBay since I was a teenager. Since this is such a big part of my life, it’s something that I talk to people about often. Whenever I met someone that was in a difficult financial situation, I would suggest that maybe they should sell something on eBay or Craigslist to get some emergency cash. I knew if they just listed their unused games online, they could earn $500 overnight and solve their problems. But for whatever reason, they refuse to let go of those things. Remember it’s just stuff. Usually, whenever I give something up in order to maintain my finances, it opens the door for something much better to replace it later.

Bankruptcy often happens because people avoid the issues. Credit: Shutterstock

1. Ignoring The Issue and Pretending It Will Go Away

Last but not least, you shouldn’t ignore your problems and pretend that it will somehow magically go away. I’ve met so many people who went bankrupt or were on the edge of bankruptcy because they totally ignored the reality of the situation. But if they had just faced the problem head-on and dealt with it, they could have maintained their finances.

Most of the time, this attitude comes from fear. If you feel so incredibly overwhelmed with financial problems, it’s easier to just pretend it’s not real. But trust me when I say that if you ignore the problem, it will only get worse. If you need advice, look at this guide on settling credit card debt from the FTC. There are so many options in place for you to make things right before you end up in bankruptcy court. All it takes is facing the issues early, before it gets out of hand.