Bankruptcy generally refers to the legal procedure in which a person or business that can no longer pay its debts is relieved of “property” and debt obligations. It is most often used as a last resort for someone who cannot repay their debts.
A person or business can file for bankruptcy under either state or federal law. However, it’s important to hire a bankruptcy lawyer from The Harris Firm, LLC, to understand eligibility requirements and consequences.
Here are the top 6 reasons people file for bankruptcy.
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Loss of employment
Loss of employment can be a very stressful time for anyone. However, unemployed people are more likely to file for bankruptcy than employed people. It is because unemployment may lead to a decrease in the ability to pay debts. So, filing for bankruptcy may help keep the debtor’s financial situation from getting worse.
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Credit cards
Credit card debt can quickly build up and overwhelm many people. If unmanageable, credit card debt may prompt someone to file for bankruptcy. A recent study showed that 15% of people who filed for bankruptcy cited credit card debts as the main factor in their filing.
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Pay cuts
When a person is faced with severe cutbacks on his or her income, it may lead to a downward spiral of debt. People who go through this experience often find that there is no way for them to pay their debts without filing for bankruptcy. In such cases, bankruptcy can be seen as a way to reach a fresh start and restore financial security.
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Divorce
When a marriage fails, it can be hard to determine what happens with the debts of the couple. Bankruptcy can help stop collection actions, wage garnishments, and even foreclosure actions when a marriage fails. A recent study also finds that the majority of people who filed for bankruptcy cited couple debts as the reason behind their filing.
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Medical expenses
Extended illness or injury, along with major surgery and other medical costs, can quickly drain a person’s bank account, particularly if they are facing unexpected expenses. A medical condition like cancer or diabetes may increase the cost of treatment. Additionally, these illnesses require more frequent visits to the hospital and higher costs as a result.
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Foreclosure
When a family cannot make its mortgage payment, foreclosure of their home and other property may be imminent. Filing for bankruptcy may help prevent such a arenagadgets financial crisis. Also, filing for bankruptcy may significantly reduce the amount that a person must pay toward their mortgage as part of the court’s plan to resolve the case.
