It’s often easy to understand why someone without a lot of financial assets may find themselves declaring bankruptcy. Maybe they were making minimum wage and working paycheck to paycheck, for instance. If there’s any disruption in their income, they almost immediately can’t pay their bills or address their outstanding debt.
However, there are countless stories of wealthy individuals also going bankrupt. For instance, some reports claim that 80% of NFL football players are bankrupt three years after they retire. Why does bankruptcy happen to people at both ends of the income bracket?
The relationship between income and debt
The thing about bankruptcy is that it doesn’t have as much to do with a person’s income as it does with their debt levels. When this debt is overwhelming and can’t be satisfied based on their income, then they may need to declare bankruptcy.
For instance, someone could be earning $1 million a year, but they may have a very high-cost lifestyle. Maybe they own multiple properties and homes. Maybe they have designer clothing and extensive credit card debt. Perhaps they buy luxury sports cars or spend more on yearly travel than the average person even earns.
Additionally, there may be others who seek to take advantage of wealthy individuals. Many famous athletes who have lost a significant amount of money point to bad investments, poor financial advice or even the actions of friends and family members—like QB Baker Mayfield, who sued his own father and brother for $12 million.
The thing to remember is that bankruptcy can happen to anyone when debt becomes unsustainable. At times like this, they need to know what legal steps they can take to eliminate their debt and focus on creating a positive financial future.