Many people have misconceptions about bankruptcy. They think it is the result of irresponsible spending and bad financial decisions. While bankruptcy does have lasting ramifications on your credit, it can help you get out from under debts and get back on track.
Getting calls from creditors or facing foreclosure on your home can be stressful. Filing for bankruptcy can reduce or eliminate your debts, save your home and halt collection activities.
Loss of Employment
The loss of employment is one of the top reasons people file bankruptcy. Without a steady stream of income, it’s often impossible to pay debts.
Many people turn to debt relief services like credit counseling or debt management when they are in trouble. These can help them learn how to budget and save money so they don’t have to resort to bankruptcy in the future.
Bankruptcy can wipe out most unsecured debts and allow you to keep some key assets such as your home, car or furniture. You may also be able to keep alimony, child support and some types of unpaid taxes. However, if you are filing for Chapter 7, creditors can sell any non-exempt property to pay your debts. Fortunately, this is rare.
Unexpected Expenses
A Harrisburg PA bankruptcy attorney may say that you can’t predict when something will go wrong that will change your finances. You could get sick, lose a job or suffer an injury that leads to expensive medical bills. These expenses can be overwhelming and often lead to bankruptcy.
Bad budgeting can also contribute to debt problems. Using credit cards to pay for necessities can quickly add up and create a debt snowball that is impossible to catch up on.
Natural disasters such as hurricanes, earthquakes and tornadoes that are not covered by insurance can wreak havoc on families’ finances. When people are unable to pay their mortgage or make their other payments, it is time to consider filing for bankruptcy. This can reduce or eliminate their debt, save their homes and stop bill collectors from harassing them.
Credit Problems
People often file for bankruptcy due to credit problems. Whether caused by irresponsible spending habits, unexpected expenses or a combination of factors, debt can quickly become unmanageable. In most cases, bankruptcy offers a fresh start and the opportunity to learn how to manage finances better in the future.
However, filing for bankruptcy does negatively impact credit scores. This can make it difficult to obtain a loan or credit card, especially in the near term. It may also take years for the negative information to cycle off of a person’s credit report. Medical
bills are one of the most common reasons for bankruptcy, accounting for 62% of all bankruptcies. Unexpected health issues can cost families tens of thousands of dollars, leaving them in a financial hole even after they’ve maxed out their borrowing limits and exhausted their emergency savings.
Loss of a Loved One
For many people, filing bankruptcy is a last resort. However, in some cases, debt is so overwhelming that it becomes inevitable.
When this happens, individuals may find themselves struggling to meet their basic needs. This can lead to a downward spiral and it is often difficult to break out of this cycle.
In these situations, the surviving spouse or heirs can file for Chapter 13 bankruptcy to get a fresh start. Chapter 13 allows an individual to reorganize their debt and repay some of it over three to five years. The court will determine which debts are dischargeable and which are not. However, a person cannot discharge debts they become responsible for after the commencement of their case. This includes debts that are secured by liens.
Civil Judgments
Creditors must get court permission to take legal action against debtors, such as garnishing wages or taking money from a bank account. When this happens, debtors can file for bankruptcy to prevent the creditors from attempting to collect on the debt.
Serious injury or illness can cost a family thousands of dollars in medical bills. For those without health insurance, these bills can be devastating. In fact, medical debt accounts for 62% of all bankruptcy filings.
Uncontrolled spending and an inability to make payments can lead to debt problems for people of all income levels. While debt settlement and debt consolidation can help manage debt, many individuals find that these solutions are not enough. Bankruptcy offers debt elimination, a stay on collection activities and asset protection.