The easy answer to this question is to get rid of debt; however, that is not really answering the question “why” someone needs to get rid of debt. Filing bankruptcy doesn’t have the same stigma that it once did. Many people used to think that filing bankruptcy meant you were irresponsible with debt or you didn’t manage your money very well.
The truth is that some people who file for bankruptcy relief did abuse credit cards and didn’t manage their money in a responsible manner. However, most people who file a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy case do so because of a financial hardship. In many cases, a person struggles for a long time trying to pay his debts while making ends meet until it becomes overwhelming. The only way to resolve the problem is to seek help from the bankruptcy court.
Reasons Why People File a Bankruptcy Case
Each person’s situation is unique; however, there are several common reasons why a person may need to seek help from the bankruptcy court to resolve a debt problem.
- Medical Bills
Medical debt is one of the most common causes of debt problems. Even for a person with great health insurance, a prolonged illness, car accident, or another medical emergency can result in thousands of dollars in medical bills. In addition to the medical bills, the person may be out of work due to the illness or injury thereby causing a significant decrease in income. The perfect storm of unpaid medical bills and loss of income creates a need for a bankruptcy filing.
- Loss of a Spouse
Losing a spouse because of death or divorce can create a financial hardship for the family. Adjusting from a two-income household to a one-income household can be difficult, especially if the finances were already stretched to the limit. In the event of a death, there may not be enough insurance to cover funeral expenses and to provide for the family’s ongoing needs. With a divorce, an ex-spouse may have trouble paying bills on one income or paying bills after paying spousal or child support. In either case, the loss of income in the household results in the need to file a Chapter 7 or a Chapter 13 bankruptcy case.
- Unemployment
Unemployment is another very common reason for filing a bankruptcy petition. Unemployment compensation can help but it is not full compensation, and it does not last forever. Some people don’t find a job before their unemployment ceases and they are left without any money coming into the home. They may turn to credit cards to provide for basic necessities and to pay bills. When they do find a job, they are so far in debt they are unable to dig themselves out without help. A bankruptcy filing can give them a fresh start so they can rebuild their finances.
- Failed Business
It is heartbreaking when a business that you have put your soul into fails. Even very successful businesses can lose business for various reasons. Many small business owners put their personal money into the business to try to “ride out the storm” until business picks up. Unfortunately, business doesn’t always pick back up. The business and the owner are unable to pay their bills. The only option may be to file a business bankruptcy case and a personal bankruptcy case.
- Credit Card Debt
Credit card debts is a common reason for filing bankruptcy, but it is not always an indication of poor financial management or unwise financial choices. As discussed above, in a medical crisis or after the loss of a job, someone may need to turn to credit cards to get by until the crisis is over. In some cases, the credit card debt may be too large to pay thus creating the need to file a bankruptcy case.
How Do I Know If I Need to File a Bankruptcy Petition?
If you don’t have any money left over each month to pay our bills after paying your living expenses, you should consider filing for Chapter 7 or Chapter 13 relief. The longer you put off speaking with a professional about filing a bankruptcy case, the bigger your debt problem grows. Take steps now to resolve your debt problem so you can begin rebuilding after overcoming a financial crisis.