There are many reasons for filing bankruptcy in Colorado. The current economic crises has resulted in dynamic shifts in bankruptcy filings. Most specifically, the bankruptcy filings have increased with an alarming rate during the past decades. As per the analysis of the US Bankruptcy Court, about 1.5 million Americans go bankrupt each year. Additionally, more than 97% of bankruptcies filed in the United States are personal bankruptcies.
There is a strong myth that bankruptcy is a kind of failure. But, in fact, it’s a powerful way to rescue your messed-up finances. A number of hardships may come in the way of people leading to unmanageable debt burden. So, the bankruptcy act as a relief to get their finances right.
Let’s discuss the top 15 reasons why Americans attempt to go bankrupt for having a fresh start.
1. Medical Debt
This is among the top reasons for filing bankruptcy. According to academic researches, two-third of bankruptcies filed by Americans are due to some form of medical expenses. Also, 72% of those filers are those having medical insurance. This is because some insurance plans do not cover such unexpected illness. So, they end up having huge debt resulting from medical expenses further leading to bankruptcy.
2. Student Loan Debt
Americans owe 1.5 trillion as student loan debt which makes it a reason for the 1% of All bankruptcy filings. According to a LENDEDU report, nearly 32% Americans owe student debt which also makes it 49% of their total debt. And become a major cause of filing bankruptcy.
Although many people believe that student debt is non-dischargeable in bankruptcy. which is, in fact, not true. It might be difficult compared to other types of debts you can eliminate it by filing an adversary proceeding.
3. Job Loss
The employment market has become quite saturated. Meaning that if someone loses his job due to any reason, getting a new one is not an easy task. In fact, there is a possibility that they might be waiting for months to become employed again. During this time, all savings tend to deplete fast. And with no consistent source of income, pilled up bills and other debts may lead to file bankruptcy.
It’s a fact that more than 50% of marriages in Americans end in divorce which is an expensive procedure. In fact, it is disastrous not only for your emotions but also for your finances. Because separation tends to divide a household into two, with child obligations, legal fees and other costs for both parties. People struggling with debt issues of their own might have to deal with the debt of their ex-partner with joint-accounts. So, going bankrupt proves helpful for having a fresh start both emotionally and financially.
5. Wage Garnishments
Sometimes due to overspending, you find your income less for paying the debts owed to the government or private creditors. In such a situation, they can retrieve their money using a legal tool of wage garnishment. It may also occur due to many other reasons. But in the end, when you receive your pay less than actual, things get difficult to handle. That’s why people tend to file for bankruptcy to stop wage garnishments. This also helps to either discharge the loans through Chapter 7 or payback through a chapter 13 repayment plan.
6. Unexpected Emergencies
Job loss, illness, car breakage or other such catastrophic events are something that is not in anyone’s hands. Also, some emergencies drain all of the savings that you spend years to accumulate. In such type of situations, bankruptcy provides a relief option to get back on your feet once again.
7. Foreclosure/ Repossessions
Nobody can imagine losing their home or car in case they fail to make their mortgage payments. This is especially a nightmare for those having a family to support. But the lending authority can foreclose your home or repossess your car upon failing to receive their money. People who find themselves in such a situation prefer to file bankruptcy rather than putting their family on the streets. When the bankruptcy’s automatic stay comes into action, it stops the creditors to continue their collection efforts. It also allows you to buy some more time for a better strategy to manage the mortgage debt.
8. Credit Card Debt
Some people tend to misuse this facility i.e. they issue multiple credit cards and start using them without realizing the ultimate consequences in the form of pilled up debt with painfully high-interest rates. But it is not always the case with everyone. Because the credit card debt also becomes difficult to handle due to unexpected emergencies. Any event that causes you to spend a major part of your savings may result using credit card for necessities. All of which end up in filing for bankruptcy in order to resolve the unsettled debt.
9. Over Spending
Effective budgeting is a skill that no all are good at. And when people overspend without realizing that their fixed income levels, financial hardships become their fate. Overspending may also be due to rising inflation that the available money losses its worth and become insufficient. That’s why overspending is among one of the reasons for filing bankruptcy. To learn more about controlling your spending especially with the holidays coming up click here.
10. Home Utility Cost
The cost of basic human utilities is also on the rise. Although a person can somehow manage to handle these costs. But when faced with wage garnishments, credit debt or some unexpected expenses, bankruptcy becomes the ultimate relief option.
11. Tax Debt
There is a misconception that the tax debt cannot be discharged during bankruptcy. But in fact, certain types of debt can be wiped out upon following a set of criteria. And even if those criteria are not met; the automatic stay can stop the creditors including the IRS from collections. It also stops the interests and penalties levied due to not paying the tax debt. Also, with the help of a chapter 13 repayment plan, you can easily manage to resolve the debt burden. That is why people having heavy tax debts tend to file bankruptcy for getting relief.
The automatic stay in bankruptcy also stops your landlord to evict you when you fall behind your payment. Although you’ll have to pay the owed rent later on, bankruptcy can help to buy some time for that. But if your landlord has already obtained a judgment of possession, bankruptcy won’t help. So, one of the may reasons people file bankruptcy is when they find themselves unable to make the rent payments.
13. Decrease in Income
This may happen if a company itself is downsizing due to financial difficulties. As a result, the employees of that company face pay cuts, and bonus cuts. If the situation remains persistent for quite some time. The workers are either left with the option to leave the job or to stay there with poor living standards. Both of which will end up in filing for bankruptcy at some point in future. Because the outcome of getting better employment is least expected due to the saturated job market. Secondly, decreased pay is sometimes insufficient to maintain a good living standard with all the debt obligations being fulfilled.
Lawsuits are one of the big reasons for filing bankruptcy. Upon not getting the debt payments, most of the creditors tend to seek the legal help by filing lawsuits. If your creditors are suing for the same cause, bankruptcy can stop such lawsuits against you. That is why, people when faced with such a situation, file for bankruptcy in order to get financial relief. Because a person who is already trapped in difficult financial situation can’t afford to spend money to defend such lawsuits. Bankruptcy, on the other hand, can help eliminate the very same debt obligations.
15. Creditor Harassment
Creditor harassment is another reason that people file for bankruptcy. In fact, creditors want their money back. So, they use every possible tool including annoying phone calls, threatening letters and even lawsuits to recover the debt. A bankruptcy automatic stay can stop them to make your life miserable. Also, it provides immediate relief to make the debt payment in a more manageable way.
There are Many Reasons for Filing Bankruptcy
These were the most common reasons that people file for bankruptcy. If you think that your current financial situation is similar to these, bankruptcy can help! It is a legal tool designed for the same cause of providing relief. And by using it, you’ll be able to start all over again no matter how difficult it seems right now. But, it is always better to seek the advice of an experienced bankruptcy attorney before getting started.