The case of bankruptcy, as uncomfortable as it may seem, is often less understood. It comes with an attached stigma that makes people feel worried.

Usually, bankruptcy is a worst-case scenario where finances run out of control. Besides, nobody anticipates bankruptcy to their business and investment. Nonetheless, many people assume that people with bankruptcy proceedings are those with poor financial management skills. But, the truth couldn’t be any further!

Bankruptcy lawyers will inform you that filing for bankruptcy is a means to provide you with a fresh start. You’ve not done anything wrong, and it’ll not in any way blemish your reputation. But, this works well if you do it as soon as possible.

If you need to understand why people file for bankruptcy, here are the top reasons. Ensure you read to the end! But, first, let’s find out in detail what bankruptcy is.

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Bankruptcy Definition

Bankruptcy is a legal procedure that begins when someone or a business cannot pay for current obligations, or repay debts. Here’s how bankruptcy works.

Usually, the debtor files a petition or, in rare cases, someone acts on behalf of the creditors to initiate the bankruptcy process. That’s why the debtor needs to seek assistance from professional and reliable bankruptcy lawyers. A bankruptcy attorney helps clients look at their debts and assets before determining if bankruptcy is the wiser path.

They also prepare legal documents to present the borrower’s case before court. An attorney with excellent knowledge of bankruptcy law convinces the jury that the client’s finances are between a rock and a hard place.

The petition will seek a fresh start and forgiveness of the debts the defaulter can’t pay. Still, the debtor will be asking for a chance where the creditors can get a portion of the repayment from their assets.

The court has to ensure it’s not bankruptcy fraud. So, it evaluates and measures all the defaulter’s assets and orders for liquidation to repay part of the outstanding debts.

Typically, bankruptcy filings benefit the economy since they give people and businesses a second chance. Creditors also gain some debt repayment, which is better than nothing.

If the bankruptcy proceeding is successful, the defaulter gets bankruptcy discharge from all the debts they incurred before the case began. Bankruptcy laws state that a bankruptcy judge should listen and decide on federal bankruptcy cases. The judge may or may not rule in favor of the petition.

6 Reasons to File For Bankruptcy

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A lot of things can lead you to bankruptcy. Even though it’s the last thing you’d wish on yourself, filing the case is usually the right thing to do. Here are the top reasons for being insolvent.

1.   Medical Debts

Did you know that about 72% of people file for bankruptcy due to medical expenses? It’s no surprise that any American adult has to pay medical insurance premiums. Sadly, healthcare costs, insurance coverage, and cash maximums have significantly increased.

Still, most people must pay out-of-pocket for medical emergencies and prescription drug costs. In short, medical insurance is not enough for the average citizen to live a healthy life. These increments burden household financial responsibilities, pushing them to become insolvent.

2.   Unemployment 

The rate of unemployment is growing rapidly in many states. Many people live from hand to mouth, working hard and hardly surviving. This means that people barely rely on their paychecks to cover essential bills.

However, living paycheck to paycheck can be devastating when a job loss occurs. Even if you have unemployment insurance, losing a job can make it hard to pay the premium; hence the debt grows. Even worse is when you also have to pay the credit card debt you used when you were trying to meet more individual needs.

The debt can be so huge in a few months that it’s difficult to catch up. Nonetheless, most hardworking but unemployed people find it hard to uphold their pride and obligations. Thus, filing for bankruptcy becomes the only and best solution left.

3.    Divorce or Separation

According to research findings, women file for divorce more than men. This means the man has to pay for the woman’s support if she wins the case.

As sad as they are, divorces are also costly. First, the legal process includes lawyer’s fees, court charges and other costs related to the proceedings. Still, the support of two households, especially if children are involved, makes the costs go over the roof.

In a divorce case, most people make costly mistakes. The costs can be overwhelming without a proper budget or stable financial strength. Consequently, divorce ends up being a top reason for a bankruptcy filing.

4.   Student Loans

Many people carry substantial student debts. While student debt is not dischargeable in a bankruptcy process, it’s still a significant reason families and individuals become broke.

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Unfortunately, some families pay for a student loan as much as they pay for their mortgage. The math is just unreasonable!

A bankruptcy case cannot erase a student loan. But, when bankruptcy is discharged for other debts, it becomes easier to pay the student loan.

5.   Credit Card Debt

About 83% of Americans own a credit card. But, some people have several cards with significant balances. The balances carry interest rates up to 20%, making the average credit card debt take a decade to pay off. This is if they pay a minimum amount.  

With huge balances, it can be challenging to make ends meet. However, credit card debt can result from things like legal fees, unexpected medical expenses and paying for basic needs when you lose a job. All these can contribute to a considerable credit card load.

In such a case, bankruptcy is the only choice to get out of the mud. Bankruptcy lawyers will help you find relevant chapters that support your petition for a fresh start.

6.   Natural Disasters

Natural disasters can turn the lives of people upside down in an instant. While this is very traumatic, it also causes massive property losses.

People lose their homes, cars and all properties in a fire, earthquake, tornado or hurricane. This also causes loss of jobs or lack of income.

When a natural disaster hits, it becomes hard to progress financially, or rebuild an entire life. People may need to relocate and find new homes, and essential documents may be missing. Undeniably, a natural disaster can cause unexpected problems that can lead to bankruptcy.

Wrapping Up

Being bankrupt is awful. But, filing for bankruptcy helps people address unexpected events to get help. Fortunately, bankruptcy is a lawful and valuable tool for individuals and businesses to get new beginnings. There are expert bankruptcy lawyers who can offer the needed help.

So, if you are going through financial challenges, bankruptcy could be the best thing for you. Remember that, bankruptcy lawyers offer the best legal advice to guarantee a successful proceeding.