There are many reasons people fall behind in paying back their debts. Regardless of the reason, sometimes this leads a person or family to declare bankruptcy; they are not able to repay their debts.This is often seen as a negative thing. People will often scoff at those who file for bankruptcy. It is seen as a failure to manage your finances properly.In some ways, and in some situations, it is. At other times, filing becomes necessary through no fault of your own.
Bankruptcy will also remain on your credit report for ten years. This will hinder your ability to receive credit when it becomes necessary to seek out a new loan. Because of this, make sure this is the best option for you, you will be fighting the ramifications for a decade following.
There are times when filing for bankruptcy can be a good thing. It will allow you to remove debt that you cannot afford to repay; it can help you remove high interest loans and allow you to start with a clean slate. Once your existing debt is wiped clean, you can then take steps to start rebuilding your credit.
Below are some of the more common reasons people file for bankruptcy.
Reduction/Elimination of Income
In today’s economy, companies are being forced to cut costs wherever they can. As the number one controllable expense, payroll is usually the first to go. This can lead to a reduction of hours you work in a week. Over time, these reduced hours will begin affecting your ability to pay bills and debts. This can lead to falling even deeper into debt.
Sometimes, drastic measures are required to keep the company afloat. Downsizing the workforce is not ideal. It does occur,however, putting many people out of a job. Anyone can be affected by a reduction in workforce. Those in the corporate towers are just as likely to be hit with a sudden job loss as the people working the registers and sales floors.
There are times when the company is forced to close. This leaves everybody blowing in the wind. Hundreds, if not thousands,of employees will lose their jobs in this case. For some, it may be awhile before they find a new position. Until then, the bills start stacking up (at which point they will just get tossed into the garbage), and bankruptcy may be the only way to escape the nightmare that has befallen them.
These can add up quickly. Considering an ambulance ride is $600 or more, the cost of healthcare in the United States is outrageous. If you work for an employer that does not provide medical insurance, then you may be struggling to find it on your own at an affordable rate. This is probably leaving you without insurance. If a sudden emergency strikes, you will be left with a bill in the hundreds of thousands of dollars in some instances.
Even if your employer provides you with medical benefits, or you are self-employed and able to afford insurance on your own, you could be left owing a hefty amount as well. Insurance companies have many restrictions and exclusions, it is nearly impossible to know every procedure they will or will not cover. Again, you could be stuck owing more than you expected.
Aside from all the court fees and lawyer fees,divorce is a leading cause of bankruptcy. When the courts divide the property and responsibilities of a divorcing couple, one spouse may end up unable to meet their portion of the debts. That half of the former couple may then need to declare bankruptcy. Depending on how the property is split, and the income both parties earn, both spouses may end up filing. Not only will they be starting anew life separately, but the debts of that old life may be cleared as well.
Credit Cards and Loans
You may have bitten off more than you can chew if you were approved for a credit card or a personal loan. There are responsible means for handling these forms of debt, but the sudden access to additional funds can sometimes be empowering. Some people may see it as freedom to spend or splurge. And while it is okay to do so occasionally, you will still want to do so only if you can afford the monthly payments.
If you have given in to that sense of freedom, you may have overstretched your funds and are finding that your income can no longer support repaying the loans along with your other bills. Prior to filing for bankruptcy, try working with your lenders to reduce your interest rates or monthly payments. Failing that, then bankruptcy would allow you to erase that debt. The whole experience is unfortunate but can serve as a lesson for after the bankruptcy.