03 May Three Common Reasons to File Bankruptcy

As with every other major decision in your life, filing for bankruptcy is something you need consider carefully. Weighing your options, understanding the effects bankruptcy will have, and deciding what is best for you all take time. Talking to your lawyer, your family, and thinking about what you believe is best are all necessary parts of this process.

Having said that, there are several common reasons that make bankruptcy a good option for people dealing with crushing debt. About 1.7 million people filed for bankruptcy last year, and most did so for similar reasons. Here are 3 common reasons to file for bankruptcy.

 

Reason 1. You want to save your home.

Owning a home is something that’s part and parcel of the American dream. Facing foreclosure and coming to grips with the possibility that you might lose your home can be a devastating situation for anyone. Fortunately, many people can save their homes by filing for bankruptcy.

In a Chapter 13 Bankruptcy—one of the two types of personal bankruptcy—homeowners who have fallen behind on their payments and who are facing foreclosure can often save their homes. In Chapter 13, you and your creditors enter into a repayment plan that allows you to restructure your debts. The plan can also allow you to get caught up on any mortgage payments you missed, and even allow you to discharge a second or third mortgage completely.

You might even be able to save your home in a Chapter 7 Bankruptcy, commonly known as a “liquidation” or a “clean start.” In Chapter 7, the bankruptcy trustee will sell non-exempt property to repay as many of your loans as possible. If you don’t have any non-exempt property, or have very little that the trustee can sell, this will essentially allow you to keep all of your property and get rid of your debts. This means that, depending on how much equity you have in your home and how much you can exempt, you might be able to keep your home in a Chapter 7.

Reason 2. You’re barely able to keep up with your credit card bills, or are falling behind on payments.

Financial pressure is stress that never lets go. When you’re fielding calls from debt collectors, receiving endless letters about late and overdue payments, or are worried about whether the bank is going to foreclose on your home, your worries never leave.

This is especially true with credit card debt. Credit card companies, or collectors who buy up credit card debt and try to collect on it, can be relentless. They’re notoriously aggressive and can harass you at all hours. They’ll do everything legally possible, and sometimes go beyond the law, in their pursuit of you and your money.

Bankruptcy can stop it all. When credit card creditors hound you every day, filing for bankruptcy will give you immediate protection from them. It will give you the time and the freedom to get your finances in order, deal with your debt, and even eliminate the payments you thought would never go away.

Reason 3. You’ve been hit with big medical expenses.

If you’re like most people you probably think that credit cards or late mortgage payments are the primary reason people file for bankruptcy. If you think that, you’re wrong. Unpaid medical bills are the single largest reason people file for personal bankruptcy.

About 56 million people—more than 20 percent of all American—struggle with medical bills every year. About 10 million of those who struggle even have health insurance, but get into trouble because of the out-of-pocket expenses that are not covered by their policies.

Fortunately, bankruptcy is often a good option if you’re facing large medical bills. Like credit cards, medical expenses are not secured. If you fail to pay the debt the creditor cannot seize your property to cover the unpaid bills unless it sues you and obtains a judgment.

Also, because many people incur medical expenses after they’ve been injured or are suffering from a serious medical condition, their ability to work and earn an income is also affected. Losing your job and facing large bills that you cannot repay make bankruptcy a viable option for many people with unpaid medical expenses.

Help Yourself Make the Hard Calculation

People who are under financial stress are not always able to look at their problems objectively. This is where consulting with a bankruptcy lawyer comes in, to objectively evaluate your situation and give you advice based on their experience and expertise.