Which factor is a common cause of personal bankruptcy?

Excessive debt and poor financial management are common causes of personal bankruptcy because they contribute significantly to an individual's inability to meet financial obligations. When a person accumulates more debt than they can manage, it often leads to missed payments, high interest charges, and ultimately a situation where they can no longer sustain their financial commitments. Poor financial management, such as failing to budget effectively, not monitoring expenses, or making unwise borrowing decisions, exacerbates this issue. Consequently, individuals may find themselves in a cycle of debt that becomes unmanageable, leading them to file for bankruptcy as a means of gaining relief from their financial struggles.

In contrast, lack of consumer spending typically does not cause bankruptcy; instead, it can indicate a healthier savings behavior. A large savings account suggests financial stability, reducing the risk of bankruptcy since individuals have resources to fall back on in times of need. Stable employment and income provide individuals with a steady cash flow, making it easier to meet obligations and potentially avoid financial distress and bankruptcy altogether.