Personal Bankruptcy and Its Evolution
When people hear the word “bankruptcy,” they cringe. That is understandable because of the stereotype that goes along with bankruptcy. We all have financial problems; the financial collapse of ten years ago is still plaguing people to this day. The world has changed, and so has our thinking when it comes debt. Bankruptcy has also changed a great deal over the past 20 years. People viewed bankruptcy as the final strike against someone’s credit and that they would not be able to recover from it. Some also thought that bankruptcy was declared by those who were careless with their money or were trying to cheat “the system.” No one wanted to admit that he or she had declared bankruptcy. They felt shamed by it and put into a group that had to have special financing just to get a car and were punished with high interest rates. However, the majority had just fallen on hard times. The psychological effects of bankruptcy are still there, even after one has bounced back and come up with a new financial plan. However, there is always the worry that it could happen again.
Now, the idea of bankruptcy has changed. It is still a last resort, but is no longer a black mark on one’s financial history. There is still the shame of bankruptcy, but it is not as harsh. People are understanding bankruptcy better today than 20 years ago. According to NerdWallet, the number of bankruptcies in 2007 was 822,500. That number rose sharply to over 1 million per year from 2008 to 2011. With so many bankruptcies being petitioned, people have been forced to change their thinking, especially those who criticize others who have declared bankruptcy.
There have been more financial resources to help those trying to pay their debts before resorting to bankruptcy, such as credit counseling companies and making an arrangement with creditors. In Australia, those struggling to pay off their debts to their creditors can enter an agreement which means they can satisfy their debts without being declared bankrupt. See here to learn more about a part 9 debt agreement. However, some cannot handle the high monthly payments. So, what has led people to declare bankruptcy?
Top Three Reasons for Declaring Bankruptcy in PA
There are a number of reasons why people declare bankruptcy. Personal bankruptcy is a way to start fresh financially. It’s also a second chance at learning how to manage personal finances more efficiently. As bankruptcy lawyers, we have come across many reasons for why bankruptcy was the solution. We will discuss the top three reasons for filing.
Reason #1: Medical Bills
Everyone knows someone who has been diagnosed with a crippling medical condition. This can be extremely costly not only to a person’s health but also with their finances. With treatments, surgeries, medical visits and other expenses, the bills can add up. Plus, if a spouse has to take time off, it could affect his or her income as well. As we all know, US health insurance does not cover much. People end up having to use up their savings, college funds and even home equity to pay off the bills, but sadly sometimes that can still not be enough. To solve this problem, sometimes people will turn to bankruptcy. Chapter 7 bankruptcy is chosen over Chapter 13 in these cases because the debtor has no way to pay the creditors.
Reason #2: Job Loss
With the economic downturn ten years ago, many people lost their jobs. With the state of the economy at that time, it was difficult to find another job quickly or at all. Not only is it devastating on a personal level, but it is also overwhelming on a financial level too. Even if a person did find another job, chances are that it was a salary less than what they were used to. Now, to make up for the lost income, some relied on credit cards to carry them to their next paycheck. Over time, this only made matters worse and the only solution was to declare bankruptcy. There is no judgment; people were doing what they had to survive. With the job loss, there was also the loss of health insurance. COBRA, temporary health coverage, is very expensive, in which few can afford.
Reason #3: Poor Credit Card Management
There are people who have misused their credit cards to the point where they have over $50,000 in debt, compared to the average household debt of $7,000. The reason for getting credit cards is to start a credit history by buying big-ticket items, such as a big-screen TV or refrigerator. However, people have used credit cards for shopping sprees they could not afford, buying clothes, furniture, electronics, etc. A big reason for this is that they were not taught how to manage their money growing up. With the rise in online shopping, excess spending has reached new heights. Also, technology has evolved rapidly and people find themselves buying a TV or gaming system and upgrading frequently as new versions come out. In addition, credit cards, as mentioned above, are used to pay for necessities during a catastrophe, such as a job loss, a house fire or illness. When filing for personal bankruptcy in this instance, Chapter 13 is applicable, especially due to the new bankruptcy law.
New Bankruptcy Law of 2005
In 2005, a new bankruptcy law went into effect making it harder for people to file bankruptcy, namely Chapter 7. This new law made people prove that they could not pay their debts, which was done with the “means test.” Many were found to be able to pay some of the debt, so they were forced to file for Chapter 13 bankruptcy. The IRS determined the payment plan under this type of bankruptcy. The attorney fees increased because more time was needed to provide documentation. Consumers were required to complete credit counseling before filing bankruptcy as well.
A Pennsylvania Bankruptcy Law Firm
Declaring bankruptcy is not a true reflection of who you are. Too many times, clients feel that they are “marked” for life because of the events that led them to bankruptcy. We are here to tell you that this is not the case. As the economy changed, so has the stigma attached to bankruptcy, not to mention the bankruptcy laws. Remember, bankruptcy was an idea our forefathers brought to the new world. It is a way to help those in dire financial situations to start over again.
Understanding bankruptcy might appear to be intimidating, but the lawyers at Cibik & Cataldo are here to help you through the process and get that new start. You will be able to get back on track with your finances and build a better credit score. We are located in Philadelphia, just minutes from the major bridges and easy to get to using SEPTA transit.
If you are going to file for bankruptcy, you contact us at Cibik & Cataldo today at (215) 735-1060. We offer a free consultation to let you know where you stand. We’ll help you create a plan for before, during and after bankruptcy. Filing for bankruptcy, whether it be Chapter, 7, 11 or 13, is a serious action, but one that makes your situation easier to handle. We know taking the first step is hard, but you can count on our experience and expertise to resolve your issues.
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seek bankruptcy protection under federal law