7 Decisions That Lead To Bankruptcy

According to the Sunday Times, in 2009, 340 people a day declared for bankruptcy in Britain – and they're not alone. Over the past three years, personal bankruptcies have been on the rise throughout the United Kingdom. Over 70% of bankruptcy cases cited "living beyond the bankrupt's means" as the primary reason for insolvency. Here are the seven decisions that lead people in the U.K. into bankruptcy.

1. Lack of an Emergency FundExpect the unexpected. Unplanned changes are the second leading cause of bankruptcies. Not having an emergency fund is one of the worst financial decisions that you could make because emergency expenses can destroy even the best of financial plans. Job loss, home repairs, car troubles and medical issues are examples of unplanned expenses that can pop up at anytime. Without an emergency fund these unplanned expenses can land you deep in debt and throw a monkey wrench into your carefully crafted financial plans. (Learn more in Build Yourself An Emergency Fund.)
   
   
2. Buying Too Much HouseBuying a house that is too big for your wallet can turn your dream home into a financial nightmare. A mortgage payment that is too large can rob you of your retirement and hinder your kids' college plans. A large mortgage payment has other bills associated with it including higher property taxes, maintenance bills and insurance. The worst part about overspending 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 Score A Cheap Mortgage.)
   
   
3. Poor Financial PlanningThere is an old proverb about how people that fail to plan, plan to fail. Failing to have a budget will land you in hot water. How do you know how much money you have left to spend if you don't keep track of your monthly expenses? Most people aren't realistic about their spending habits and underestimate their monthly expenses, leaving them strapped for cash and vulnerable to insolvency. It's important to remember that you should even record one-time expenses and seasonal purchases like birthday and Christmas presents. (Learn how to start planning, read 6 Months To A Better Budget.)
   
   
4. Ignoring DebtWhen people fall behind on their bills, they have a tendency to ignore their debts. Out-of-sight, out-of-mind doesn't work when it comes to debt. Ignoring bills doesn't make them go away. Avoiding court hearings, bill statements and creditor telephone calls are all signs that you are on the road to financial ruin. You may find that creditors will be willing to work with you if they are informed that you are having difficulty paying your bills.
   
   
5. Too Much Credit Card DebtPeople that are facing financial difficulties often rely on their credit cards in order to survive. Racking up massive credit card debt has led many consumers down the path of insolvency. This year alone over one million U.K. residents have borrowed from their credit cards to make mortgage and rent payments according to the BBC. While this may temporarily stave off bankruptcy, it's only a short-term solution. You can't eliminate debt by borrowing more money at a higher interest rate. These borrowers are navigating a slippery slope and are only increasing their debt problems long term. (Learn how to avoid this. Read Expert Tips For Cutting Credit Card Debt.)
   
   
6. GamblingDo you love the thrill and excitement of the casino? Maybe you prefer placing a bet from the privacy of your own home. While occasional gambling might be a recreational hobby, habitual gambling will lead you straight 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 people are turning to online gambling. Mortgage payments, car notes and bill payments are gambled away every day on online poker sites and online sports books.
   
   
7. Tax ProblemsTax problems are one of the leading causes of bankruptcy in the U.K. Whether failing to pay personal taxes or business taxes, tax problems have led many U.K. residents into bankruptcy court. The British government can force citizens that fall behind on council tax payments to sell off assets through bankruptcy proceedings to repay tax debts.

The Bottom LineLiving beyond your means greatly increases your chances of facing financial difficulties and going through bankruptcy. Making the right choices can help keep your financial future on sound footing, whereas the wrong decisions can lead you to financial ruin.