Top 10 Reasons People Declare Bankruptcy

Bankruptcy is often viewed in a negative light, after all it means you are out of money right? Not necessarily. There are many reasons people and businesses declare bankruptcy aside from being broke. Here are the top ten reasons people file for bankruptcy.

1. Discharge of Debts

Ever heard the phrase, “Up to your eyeballs in …” well the people that fall into this category are up to their eyeballs in debt. Declaring bankruptcy allows people who owe more money than they will ever reasonably be able to pay back to creditors some additional options. All types of bankruptcy filings allow for at least part, if not the majority of debts to be forgiven. Unfortunately filing bankruptcy doesn’t generally get rid of student loans, child support or alimony, or most tax debts.

2. To Keep Their House

While this might seem backwards depending on what you have been told about bankruptcy, it is actually a very effective way for people behind on their mortgages to keep their homes because declaring Chapter 13 bankruptcy can actually stop a foreclosure and allow them to get caught back up on payments they have missed. The remaining payments aren’t wiped away but they are structured into a manageable payment plan allowing the homeowners to repay the amount they are behind on a schedule that works better for them.

3. To Keep Their Car

Some people will file bankruptcy to avoid their car, truck, or other automobile from being repossessed. If you file bankruptcy before your car is repossessed or quickly thereafter, it can force the creditor to either let you keep your car or return it to you. Payments that have been missed will be consolidated into a Chapter 13 Bankruptcy plan. The payments will be made to the Chapter 13 Bankruptcy trustee who will pay the finance company on your behalf and force them to work with you.

4. Pay Medical Bills

The unfortunate event of an accident or recently discovered illness can cause bills to add up faster than one ever thought possible. Whether the bills are your own or those of a loved one, they can quickly take a toll on the checking and savings account. In order to get out from under the mass accumulation of medical bills you can file for Chapter 7 or 13 Bankruptcy which will alleviate the burden of the bills significantly; or in some cases completely.

5. Recent Unemployment

Sometimes a family gets comfortable with the income that they are taking in every month and stretching it as far as it will go without having anything saved in the bank in case of an emergency. This typically means that after the severance pay (if there is any) runs out, the family is left with a stack of bills that needs to be paid at the end of the month. After some time passes and the employment situation hasn’t changed, the family has racked up quite a bit of debt in possible credit card charges, late fees and interest and possibly medical bills. Even if income eventually does improve, this is a difficult situation to get out of without the help of bankruptcy.

6. Keep the Creditors At Bay

Many people know that it is highly unethical and sometimes illegal to call debtors relentlessly and harass them for their outstanding payments. Most people who have been behind on bills will agree, even if the creditor action doesn’t reach the level of unethical or illegal, it is still at a minimum annoying and leaves people feeling frustrated, stressed, depressed and otherwise unhappy. Bankruptcy will put all of the demands of the creditors on hold and will stop all of the calls and harassment all together.

7. Reinstating a Driver’s License

In certain circumstances, filing bankruptcy can help you reinstate a driver’s license that was suspended due to certain infractions, fines or other debts owed.

8. Student Loan Help

Most student loan debts aren’t eligible for discharge in bankruptcy unless the borrower meets the criteria for “undue hardship.” While a bankruptcy is pending, though, borrowers are not required to pay the minimum monthly contractual payment and sometimes this reprieve is very helpful for getting finances back in order.

9. End Wage Garnishment

When wages are being garnished, a creditor can take up to 25% of your net pay directly from your paycheck often times leaving you unable to pay some basic necessities. Filing a Chapter 7 or Chapter 13 Bankruptcy allows for the the end of wage garnishment and the return of necessities to their life.

10. Refute Claims of Fraudulent Creditors

Sometimes a creditor claims that a debtor owes more money than they really do. Bankruptcy allows for the debtor to challenge these with the help of an attorney who will help coordinate between the creditor and the debtor. Bankruptcy can actually help stop these fraudulent charges for good. Sometimes a debtor disputes the amount owed or even that a debt is valid and the process of getting that cleared is very difficult and expensive outside of bankruptcy. Especially if the person has other legitimate debts, but sometimes even if not, the process of filing bankruptcy can many times put an end to fraudulent creditor issues much faster and more efficiently.