7 Decisions that lead to bankruptcy in the united kingdom

According to the Sunday Times in 2009, 340 people a day filed for bankruptcy in the UK – and they're not alone. Personal insolvencies have been on the rise across the UK for the past three years. Over 70% of bankruptcy cases that go beyond the limits of bankruptcy are the main reason for insolvency. Here are the seven decisions that lead people to bankruptcy in the U.K.

In pictures: 9 ways to go bankrupt

  1. Lack of an emergency fundExpect the unexpected. Unplanned modifications are the second most common cause of bankruptcies. Not having an emergency fund is one of the worst financial decisions you could make because emergency costs can destroy even the best financial plans. Job loss, home repairs, car problems and medical problems are examples of unplanned expenses that can occur at any time. Without an emergency fund, these unplanned expenses can put you deep in debt and throw your carefully crafted financial plans into disarray. (Learn more in Build Yourself A Emergency Fund.)
  2. Buying too much house Buying a house that is too big for your wallet can turn your dream home into a financial nightmare. One mortgage too many can rob you of your retirement and hinder your children's college plans. A large mortgage payment has other bills associated with higher property taxes, maintenance bills and insurance. The worst part about spending on your home is that it can land you in foreclosure, making bankruptcy court a likely destination. (Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible. Read the points A cheap mortgage.)
  3. Poor financial planning There is an old saying about people who don't plan , plan to fail. If you don't have a budget, you'll end up in hot water. How do you know how much money to spend if you don't keep track of your monthly expenses? Most people are not realistic about their spending habits and underestimate their monthly expenses, making them vulnerable to money and insolvency. It is important to remember that you should even record one-time expenses and seasonal purchases such as birthday and Christmas gifts. (Learn how to start planning, read 6 months to a better budget.)
  4. Ignoring debt When people fall behind on their bills, they tend to ignore their debt. Out-of-sight, out-of-mind doesn't work when it comes to debt. Ignoring bills won't make them go away. Avoiding court hearings, billing statements, and phone calls from creditors are all signs that you are on the road to financial ruin. You can find that creditors are willing to work with you when they are informed that you are having trouble paying your bills.
  5. Too Much Credit Card DebtPeople facing financial difficulties often rely on their credit cards for survival. Taking on massive amounts of credit card debt has led many consumers down the path to bankruptcy. This year alone, more than one million U.S. residents borrowed from their credit cards to make mortgage and rent payments, according to the BBC. While this can temporarily stave off bankruptcy, it is only a short-term solution. You cannot eliminate the debt by borrowing more money at a higher interest rate. These borrowers are on a slippery slope and only increase their debt problems in the long run. (Learn how to avoid this. Read expert tips on reducing credit card debt.)
  6. Gambling You love the thrill and excitement of the casino? You may prefer to place a bet from the privacy of your own home. While occasional gambling might be a recreational hobby, habitual gambling leads directly to the poorhouse. In the past, betting on card games, lotteries and sports was the method of choice for gamblers. With the rise of the Internet, more and more people are turning to online gambling. Mortgage payments, car checks and bill payments are gambled away every day at online poker sites and online sports betting sites.
  7. Tax problemsTax problems are one of the main causes of bankruptcy in the UK Business taxes, tax problems have led many British residents into bankruptcy court. UK government can force citizens who fall behind in Council Tax payments to sell assets through bankruptcy proceedings to repay tax debts.

The end resultLiving beyond your means increases your chances of experiencing financial difficulties and going through bankruptcy. Making the right choices can put your financial future on a solid footing, while making the wrong ones can ruin you financially.

You still feel uninformed? Check out last week's highlights in Water Cooler Finance: Zombies File Taxes, Dead Bills Rise Again.

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