Reasons for Filing for Bankruptcy
Sometimes, the best option you’ve got is to file for bankruptcy. In many cases, deciding to engage in bankruptcy quickly is a good decision in order to prevent wage garnishment, foreclosure, or repossession. This decision can help you keep more property and reduce the debt you owe.
One of the top reasons to engage in bankruptcy is home foreclosure. Once filing for bankruptcy, an automatic stay is issued where lenders and creditors are not allowed to continue collection actions. This means that foreclosure proceedings cannot continue under the stay. However, there are differences in the Chapter 7 bankruptcy and Chapter 13 bankruptcy in this respect.
In a Chapter 7 bankruptcy, there is no mechanism to help you keep your home and the stay can be lifted through a motion filed by the lender. Thus, under a Chapter 7 bankruptcy, the relief is temporary. On the other hand, if you file a Chapter 7 bankruptcy prior to the end of the foreclosure, the mortgage debt is wiped out and you won’t owe the balance. In a Chapter 13 bankruptcy, you can set up a plan to catch up your past due payments and keep your home.
Repossession of your Vehicle
The automatic stay doesn’t just benefit you regarding home foreclosure, but also helps to protect your vehicle. In a Chapter 13 bankruptcy, you have the opportunity to catch up missed payments by including them in your plan. Regardless of the type of bankruptcy — Chapter 7 or Chapter 13 — you may have the opportunity to retain your vehicle if the repossession was recent.
Moving to a State where Exemptions are Less Favorable
When you file for bankruptcy, it’s commonly believed that you’ll lose everything. This isn’t the case. In bankruptcy, you don’t have to give up all of your property and the rules are different based on the state you live in. Therefore, if the exemption laws in the new state are less favorable to you than those in your current state, you should go ahead and file. State exemptions are dependent upon your “domicile” and, in most cases, if you’ve moved recently, the exemptions from your old state will be used.
While it’s a temporary relief, if you rent and your landlord is evicting you, filing for bankruptcy will put a stop to the eviction in most cases. However, if your landlord already has a judgment for possession, filing for bankruptcy will make no difference.
Stopping a Lawsuit
If you’re being sued for breach of contract, car accident damages, medical debt, or credit card debt, filing for bankruptcy will put a stop to the suit. In some cases, filing for bankruptcy will not stop the lawsuit, but, generally, it makes no sense to defend yourself in multiple lawsuits if you can have a judge discharge the debt in bankruptcy.
Starting a Job with Higher Income
To qualify for a Chapter 7 bankruptcy, you have to pass the means test, which is based on your income. The means test considers your average income over the six months prior to filing. If your income is higher, you’re less likely to pass this test. If you’ve started a job with a higher income and it’s more than what’s required to cover your expenses, it’s more likely that it’ll be recommended that your case is converted to a Chapter 13 bankruptcy.
Expectation of Receiving Property Soon
In most cases, you can keep property in which you get an ownership interest after filing for bankruptcy. There are exceptions though. For example, inheritances and lottery winnings must be reported for up to 180 days following filing for bankruptcy. So, if you are going to file for bankruptcy, it may be beneficial to file prior to getting property.
Medical Expenses, Credit Cards, Student Loans and Overspending
It’s no secret that medical expenses can add up quickly and, frequently, people can’t pay them. In fact, medical expenses is one of the top reasons for filing for bankruptcy. However, not all of the people that file for bankruptcy due to medical expense reasons are those without medical insurance. Similarly, not all credit card debt is caused by lack of financial responsibility.
In many cases, hardships are a major cause of not making payments because all money received is needed for essential things, such as food, rent, and utilities. If there’s a financial hardship, many people turn to credit, which can also spiral out of control. Yet, it is also acknowledged that there are some cases where debt is caused by overspending.
This can be caused by inflation, poor budgeting, or lack of attention paid to spending. Another problem is often student loans. You spent all that time getting the education, expecting you could get a job right after graduation, but that often isn’t the case. New graduates find themselves over their heads in student loan debt and unable to repay it and cover essential payments.
Job or Income Loss
Some problems leading to filing for bankruptcy are attributed to job loss or income loss through pay cuts or hours cut. When companies don’t thrive, costs are frequently cut and if you can’t make up the lost income, your only option may be to file bankruptcy. This is because you use your savings in order to cover your essentials, as well as the additional expenses associated with these cuts, such as COBRA.
Emergencies and Divorce
It’s typically recommended to have several months of your essential expenses saved in the case of an unexpected emergency, frequently six months worth. Not everyone can afford to do this and emergencies can happen, well, in an instant. Emergencies can lead to catastrophic financial consequences, leading you to file for bankruptcy. Divorce is expensive, even if you don’t consider the cost of lawyers. It costs money to untangle your lives, which may also lead to bankruptcy.
As you can see, people file for bankruptcy for many different reasons and in many different time periods. If you need help, contact us to find out what your options are regarding bankruptcy.