Most Common Reasons For Filing Bankruptcy
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Most Common Reasons for Filing Bankruptcy
Filing for bankruptcy is one of the most challenging experiences an individual can face. Many never expect to find themselves in this situation until it becomes the only viable option. Often, it occurs when a person struggles to meet financial obligations, such as car loans or credit card payments. This process is difficult not only for the debtor (the person who owes money) but also for the creditor (the individual, business, or entity to whom the money is owed).
While debtors typically initiate bankruptcy, there are rare instances where creditors may do so, known as involuntary bankruptcy. This usually happens when creditors are owed significant amounts. Although it provides some relief to creditors, as bankruptcy ensures they eventually recover their money, it can still be a frustrating process.
Bankruptcy Chapters
- Chapter 7 Bankruptcy: Often called "straight bankruptcy," this is the most straightforward form. It involves liquidating all non-exempt assets to pay off creditors. Debtors generally receive a discharge of debts within four months. In most cases, if the debtor has no significant assets, they can achieve a fresh start.
- Chapter 13 Bankruptcy: Instead of immediate asset liquidation, debts are paid on a fixed schedule. Although creditors may prefer quicker resolutions, they are assured of eventual payment.
Common Reasons for Bankruptcy
1. Unemployment
2. Large medical expenses
3. Overextended credit
4. Marital problems
A recent study found that medical bills contribute to nearly half of all bankruptcies in the United States.
Debts Not Erased by Chapter 7
While Chapter 7 offers significant relief, certain debts remain:
- Child support and alimony
- Personal injury liabilities
- Student loans
- Income tax debt
Understanding New Bankruptcy Laws
Recent changes in bankruptcy laws, especially the introduction of the means test, have stirred controversy. These new regulations impose additional requirements, which may compel some to file for Chapter 13 instead of Chapter 7. However, for most filers, Chapter 7 remains accessible without undue difficulty. Consulting a knowledgeable bankruptcy attorney can help navigate the filing process and meet all legal requirements.
Navigating bankruptcy can be complex, but understanding your options and seeking professional guidance can lead to a fresh financial start.
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