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Financial difficulties can hit people for a variety of reasons. When bills start to pile up and people are having trouble paying them, they may think about filing for bankruptcy. If you find yourself in this category, you’re not alone. Statistics show that consumer bankruptcies totaled 372,240 in 2022.
As we examine why people file for bankruptcy, you’ll see some common situations that have left people looking to change their financial situation.
In many cases, people look for other solutions to their money problems before deciding to file for bankruptcy. But bankruptcy is sometimes the best and only way out when faced with one of the following situations.
Medical bills are one of the most common reasons people file for bankruptcy. The rising cost of healthcare can lead to unforeseen financial situations. An unexpected illness can also result in a mountain of medical bills. This type of debt can be included in a bankruptcy case. Filing for bankruptcy can help discharge or restructure medical debts, giving people a fresh start and the ability to focus on their health.
This is the most common reason why people file for bankruptcy. Statistics have shown that 40% of all bankruptcy filers cite losing their job as the reason for deciding to file. Filing for bankruptcy can provide relief from debt collectors and may allow people to discharge certain debts, such as credit card debt. Chapter 7 is typically the most popular form of bankruptcy because most debts can be discharged allowing people to have a fresh start.
Although people may have emergency funds for situations like unemployment many times that’s not enough to cover a long-term situation. After exhausting those funds and other resources, bankruptcy is often the only choice left.
High-interest credit card debt can quickly accumulate, especially if the borrower is only able to make minimum payments. Filing for bankruptcy can help discharge credit card debt and may allow people to restructure other debts, such as mortgages or car loans.
Falling behind on mortgage or car payments can lead to foreclosure or repossession. Filing for bankruptcy can provide an automatic stay, which temporarily halts collection efforts and gives people time to catch up on missed payments or restructure their debts. In some cases, Chapter 13 bankruptcy can allow the homeowner to get current on their mortgage payments and possibly modify the loan to better terms through the bankruptcy Mortgage Modification Mediation (MMM) Program.
Addictions to drugs, alcohol, or gambling can lead to many different problems, including financial ones. When this is the case, some may look to bankruptcy as a way to cope. When this is the case, it’s also important to seek treatment for the addiction so that all issues can be resolved.
Going through a divorce can leave many people in financial ruin. Whether it’s a result of mounting attorney fees or adjusting to only living on one income, divorce can lead some people to file for bankruptcy.
In some cases where joint accounts and debts were present, one party may stop paying the debt. This leaves the other person liable. This type of debt can become overwhelming. Unless you have removed your name from the debt, creditors can come after you for payment if your ex has become delinquent with payments. Filing for bankruptcy can help discharge or restructure debts related to the divorce, giving people a fresh start.
When a creditor obtains a court order to garnish your wages, a portion of your paycheck is automatically deducted to pay off your debts. Filing for bankruptcy can stop wage garnishment and may allow people to discharge the underlying debt.
If you are sued and a judgment is entered against you, you may be required to pay a significant amount of money. Filing for bankruptcy can discharge the underlying debt, preventing the creditor from collecting on the judgment.
In some states, unpaid traffic fines or other debts can result in the suspension of your driver’s license. Filing for bankruptcy can help discharge these debts and may allow people to reinstate their driver’s license.
If you are struggling to make your car payments, you may be able to use bankruptcy to reduce the interest rate on your car loan. In a Chapter 13 bankruptcy, you can often “cram down” the value of your car to its fair market value, which can reduce the amount of the loan and the interest rate.
If you fall behind on your homeowners’ association (HOA) fees, the HOA may initiate foreclosure proceedings on your home. Filing for bankruptcy can stop the foreclosure process and give you time to catch up on your payments. Additionally, if your home is underwater (meaning you owe more on your mortgage than the home is worth), you may be able to use bankruptcy to discharge the unsecured portion of your HOA fees.
As always, it’s important to seek professional advice and explore all options before making a decision to file for bankruptcy. Bankruptcy is a serious decision that can have long-term consequences, so it’s important to understand your options and make an informed decision. A qualified bankruptcy attorney can help you explore your options and determine whether bankruptcy is the best course of action for your specific circumstances.
If you are considering filing for bankruptcy and have questions, the team at Stiberman Law can help. We have 13 years of experience in bankruptcy law and can answer your questions and guide you. Call us today at (954) 922-2283 or fill out the form below to schedule a free consultation with a Florida bankruptcy attorney.
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