No one wants to file for bankruptcy. But many Americans did file last year and many more will file this year. The question then becomes: What drives them into a situation where they need to wipe their financial slate clean? What happened along the way that made bankruptcy the best option available?
There are three factors that increase the likelihood that a person will be driven into bankruptcy. They are unlikely to surprise anyone. Those are:
● Unforeseen medical problems, and
● Job loss.
Simply put, these factors more than any others are a good indicator of the type of financial turmoil that can make bankruptcy more likely. But they don’t tell you anything about why you should file for bankruptcy. Certainly, not everyone who is going through a divorce will file bankruptcy, nor will everyone who loses their job need to file for bankruptcy. Below, we’ll take a look at how these situations can create the type of financial stress that drives someone into bankruptcy.
Divorce and Bankruptcy
Dissolving a marriage creates an incredible amount of financial strain. There are legal fees to deal with. There’s alimony and child support. And financial obligations that were once shared now require the support of only one person. Those who cannot afford to pay alimony and child support can have their wages garnished meaning that there will be less money to pay for their current expenses. Legal costs alone are enough to drive some into bankruptcy, while others can no longer rely on certain revenue streams to meet their needs. In other cases, one partner is saddled with what was once the couple’s shared debt. Oh, and the leading cause of divorce? Financial problems. So there’s that as well.
Sudden Illness or Accident
A sudden illness or a traffic accident creates at least two major types of financial stressors. Firstly, you’re likely missing time from work. Secondly, if you don’t have health insurance, then you’re going to pay out of pocket for any medical debt that you accrue. Once the hospital or doctor doesn’t get paid within a few months, then the account goes into collections. They will likely either hire a debt collections agency or a debt collections attorney to recover the debt. Either can file a lawsuit against you, and once they get a judgment in their favor (they only need to prove you owe the debt) they can then begin garnishing your wages, levying your bank account, or placing a lien on your home.
For that reason, medical debt is the leading cause of bankruptcy according to one study done at Harvard and you can easily see why. Health care costs in the U.S. are outrageous and most U.S. workers are living check to check. The study showed that not only did 62% of the people filing for bankruptcy list medical debt as their biggest problem, but 78% of that 62% actually had health insurance. In other words, having health insurance doesn’t guarantee that you won’t go into debt from medical expenses.
When American workers are laid off, their prospects for finding a new job may not be that great. While larger cities may provide multiple opportunities, those living in rural townships may rely entirely on one business to meet their financial needs. If this business goes out of business, the entire town suffers and individual workers are left without an income stream even though their expenses aren’t going anywhere.
Worse still, at least some of these folks will need to relocate their family which is an additional expenditure and one they may not be able to afford. As interest accrues on the loans they’ve taken out, they find themselves in a position where they simply cannot afford to pay off their debts. Bankruptcy becomes the only option. Meanwhile, they’ll have to wait to find a new job before they can get health insurance again.
Foreclosure & Repossession
One of the main reasons that folks are driven into bankruptcy is to prevent a foreclosure on their home. If an act of God doesn’t force the issue, the bank surely will. Bankruptcy can stop a foreclosure in its tracks, even if the bank has already begun the process. But keeping your home will require you to make payments on both arrearages and future monthly mortgage payments.
The same holds true for a car repossession. If your lender is forcing the issue, you can stop a repossession in bankruptcy.
So these are two common reasons why folks end up filing.
Talk to a Eugene, OR Bankruptcy Attorney Today
If you’re in a difficult spot financially and all your attempts to work your way out of debt have failed, then bankruptcy offers you the chance to start with a fresh slate. It may not be how you wanted things to go, but it may also be exactly what you need. Talk to Butcher Law Office, LLC
today to learn more about how we can help you out of a difficult situation.