The bankruptcy statistics in the United States are alarming. In the past few decades, the number of people who struggle with paying debts and are forced into bankruptcy has increased significantly. Bankruptcy is a legal process that helps relieve an individual or business from the financial responsibility of settling their debts. When you are overwhelmed by your debts, you can file a bankruptcy petition with the court.
Every day, thousands of individuals and businesses file for bankruptcy to escape the liability of their debts. This is a result of severe financial issues affecting our daily lives. There are many reasons why a person or business could go bankrupt or rooted around our personal lives and how we manage our finances.
If you are contemplating bankruptcy as a way out of the financial crisis, it would be wise to seek legal guidance from a competent bankruptcy attorney. Below are some of the reasons why people go bankrupt:
Divorce and Separation
Money and financial issues are significant causes of arguments between spouses. Also, the financial issues may be an aftermath of divorce. When you are separated from your spouse, the expenses may increase significantly, causing you to sink into bankruptcy. Therefore, when you are dealing with divorce and bankruptcy, timing is essential.
Matters of separation and divorce can be very complicated for both parties. Divorce is not only traumatic, but it can lead to significant financial problems. When a household splits, the expenses increase, and the income is divided. In addition, the divorce process is long, and you will require legal guidance, which is quite expensive. The legal fees needed for representation in divorce proceedings can cause one to go bankrupt. Additionally, the ongoing cost of running separate households may put a further toll on the finances.
When a divorce has children involved, the court must determine the issue of custody, child support, and alimony. Failure to pay child support as dictated by the court could lead to wage garnishment that can push you further into bankruptcy. If one party cannot pay their debt, it may be challenging to manage the expenses, and filing for bankruptcy may be the only way out.
Although divorce is a leading cause of bankruptcy, proper planning can make both your divorce and bankruptcy proceedings easier. Your bankruptcy and divorce timing will significantly depend on the place you live and the amount of debt you owe.
A bankruptcy case begins when you file a petition in court. During bankruptcy and divorce, most couples want to file together since it is more efficient. Some of the benefits of filing for bankruptcy jointly before a divorce include:
- Bankruptcy will discharge debts for both spouses and thus reduce the issues to be solved in divorce court.
- Married couples do not have an obligation to file for bankruptcy together. However, it costs less to file jointly. This is because you do not need to hire separate attorneys for representation in bankruptcy court.
- When separation causes you to go bankrupt, filing for joint bankruptcy before the divorce will simplify property division issues. However, before filing jointly, you must ensure that your state allows you enough exceptions to protect the property you own.
If you choose to file for Chapter 7 bankruptcy, it is crucial to remember that not all debts can be discharged. Even after the court grants you liquidation bankruptcy, you will still be required to pay child support and alimony as dictated in divorce and custody proceedings. If divorce and separation issues have pushed you into bankruptcy, it is crucial to contact a competent bankruptcy attorney for legal guidance.
Credit Card Debt
Credit card debt is not just a result of spending irresponsibly. Illnesses, job loss, and emergency expenses can cause a pile-up of credit card debt. Some of the ways through which you can reduce your credit card debt and avoid sinking into bankruptcy:
- Balance Transfer. Doing a balance transfer is one of the best ways to avoid extra interest on your credit card debt. Most transfer credit cards offer an APR of 0%, and you may not need to pay interest from six months to one and a half years. This helps you pay directly from your credit card and protects you from additional debt.
- Negotiate with your credit card company. Many lenders negotiate a deal for you to pay your debt. Since they want you to pay their money, lenders will take the opportunity for a repayment deal. For example, if you want to pay your credit card debt in a lump sum, the company could decrease the amount you owe. Before you file for bankruptcy due to credit card debt, it would be wise to contact your credit card company to discuss other options for managing your debt.
- Pay on time to avoid fees. Paying as much as you can help reduce the balance and interests to your debts. If you can lower your balance below the credit card limit, you will avoid the limit fees.
Poor financial Decisions
As a result of inflation, it has become more challenging to manage money. Combined with bad budgeting and poor financial decisions, your debt could accumulate and become difficult to cover, causing you to declare bankruptcy. Although bankruptcy is a sensible way to seek relief for your debts, you can manage your finances better and consolidate your debts to avoid this course of action. Debt is not a problem that disappears on its own. Therefore, it is vital to deal with the situation as soon as you learn that you are on the verge of bankruptcy.
Many people assume that financial problems only arise from living luxuriously. But, often, you could find yourself on the verge of bankruptcy due to changing life circumstances. Although you cannot control all experiences in your life, you need to identify the cause of financial hardships and control it to avoid falling into bankruptcy. Some of the reasons for poor financial management that cause bankruptcy include:
- Lack of Financial Knowledge. One of the causes of poor financial management is the lack of knowledge. You cannot learn to manage your finances in school. Therefore, you must make an effort to learn about economic issues. Lack of financial knowledge could lead you to make decisions that could cause financial downfall.
- Poor work ethics. Some of the most successful individuals in the world have high discipline in their work. With the growing inflation having a steady income is essential to help you pay all your debts. By avoiding distractions in your work, you can complete all your tasks and keep a steady income.
- Failure to plan. Failure to manage your money and expenses could result in poor financial management. For you to prosper financially, you must have a plan and stick to it. You may not be living a luxurious life, but failing to plan could cause the accumulation of debts and push you to bankruptcy.
- Poor Debt Management. Debt is an aspect of our lives that cannot be avoided. However, knowing the difference between good and bad debt is crucial. For example, taking a loan to invest or pay for emergencies may be an excellent way to meet your needs. However, borrowing to fund a luxurious life may not be the best decision. If you find yourself deep in debt, you need to address your habits and resolve them as soon as possible.
- Defaulting payment of loans. Failure to pay your loans as expected can create severe financial trouble. Debt is not a bad thing, but defaulting on your payments could increase the interest on your loan and affect your credit score.
Unexpected Job Loss or Reduced Income
Many Americans live paycheck to paycheck. Job loss and a decrease in income go hand in hand with bankruptcy. Not many individuals can afford the luxury of a six months emergency fund. When your income is decreased or taken away, you will have an immediate emergency. It will be challenging to stay current on your bills, and the collectors may not want to hear your excuse for failing to pay. When you lose your job suddenly, other options of escaping bankruptcy become unavailable.
Timing is of the essence when you are on the verge of bankruptcy due to job loss. Chapter 7 bankruptcy may offer some relief to the financial situation when you have lost your job. Liquidation bankruptcy will clear all your unsecured debt. If you were earning a low income and did not have many assets, filing for bankruptcy could be the best option. When your non-except property is sold to pay your creditors, all other remaining debt will be discharged.
Losing your job or decreasing your income makes it easier for you to qualify for liquidation bankruptcy. However, if you have lost a well-paying job, your income in the past six months could make it difficult for you to pass the means test for Chapter 7 bankruptcy. Therefore, it would be wise to delay filing or file under Chapter 13. The downside of filing chapter 13 bankruptcy after losing your job is that you will need to find a new job soon to manage the payment plan for your debts.
Filing for bankruptcy can significantly impact your job search. Although the federal and State government cannot deny you a job due to bankruptcy, the private sector may not follow the rules. Therefore, it is crucial to consider your options before resulting in bankruptcy.
Medical Expenses
Injury and illness are not expected situations. However, when they come about, they must be handled diligently to avoid a financial crisis. Even with substantial health insurance, unexpected medical expenses may be difficult to control. In addition, some illnesses and injuries may keep you away from work, making it even more challenging to manage medical debts.
There is no medical bankruptcy in the bankruptcy code. However, medical debt is one of the reasons why many Americans go bankrupt. Rare and severe medical conditions can result in hundreds of thousands of dollars in medical expenses. These medical bills could wipe out your savings, retirement accounts, college funds, and home equity. After exhausting all your financial avenues, bankruptcy may be the only way out of the crisis.
Can I Discharge Medical Debt through Bankruptcy?
Yes, when the court grants you bankruptcy relief, medical debt will be wiped out. Medical debt is an unsecured debt since it is not tied to an asset. However, if overdue medical bills are your basis for wanting to declare bankruptcy, you can explore other alternatives before settling for bankruptcy. Some of the ways through which you can keep your medical bills in check to avoid going bankrupt include:
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Choose providers and Pricing Wisely
Many Americans have health insurance cover to pay for most of their healthcare services. However, even when you are covered by health insurance, it would not hurt to shop for affordable services by researching costs online. While healthcare costs have increased significantly, organizations that advise people treatments and health care providers have come on the scenes. After receiving a diagnosis, it would be wise to do online research on different facilities and their costs to make a more informed decision. Also, you can negotiate for your procedures and ask for a discount before you show up for an appointment.
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Watch out for Billing Errors
When you spend time in a health facility, you will receive an email on your medical expenses and may not include a breakdown of all your services. Therefore, it would be wise to ask for an itemized bill to ensure that you received all the services for which you are charged. Also, you can review your insurance coverage each time you pay your medical bills.
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Manage your Medical Bills
When you are willing to take an active approach, restructuring your payments can be less complicated. For example, if you have substantial medical bills and you cannot cover them at once, you can speak with your billing office to create a payment plan to enable you to make manageable payments. In addition, if you have a high deductible plan, you can create a savings account for your medical bills. This can help you avoid looking at other saving accounts when you are faced with substantial medical bills.
Student Loans
Student loan debt is an overwhelming issue that impacts many Americans. When you have overwhelming student loans and find it challenging to cover your expenses, you could be tempted to ignore the loans. However, defaulting on student loans has the same severe consequences as failing to pay your credit card debt. In addition, since the federal government guarantees most student loans, they could turn your finances upside down for failing to pay the debt.
When your student loan is ninety days overdue, you will be considered a delinquent. This fact will be reported to all credit bureaus, and your credit rating can suffer significantly. When you are declared a delinquent, all your attempts to secure credit could be denied or allowed at a high rate. Sometimes, you need credit to pay off some of your debt and cover your expenses. However, when the loans are denied, your other debts could accumulate, causing you to go bankrupt.
When your student debt payments are late for up to 270 days, you may officially be considered a defaulter. In this case, the institutions you owe them money will refer your account to the collection agencies who could take drastic measures.
In addition, when the federal government is involved in collecting your student loan debts, they may seize your tax refund and garnish your wages. Wage garnishment may make it difficult to manage your dent, and you will have no other option but to declare bankruptcy. You can avoid bankruptcy from overdue student loans by taking advantage of programs designed to help you pay before entering the default stage.
When you file for bankruptcy, student loans are difficult to discharge. The court can only offer you bankruptcy relief for your student loan debt if you prove the hardship on you and your dependents. However, filing for bankruptcy helps protect you from collection actions until your case is resolved. If you are hoping to discharge your student loan debt through bankruptcy, it is crucial to consult a bankruptcy attorney.
Find a San Diego Bankruptcy Lawyer
Filing for bankruptcy helps relieve you from the personal responsibility of some of your debts. However, bankruptcy has some disadvantages. Therefore, it is not the right option for all individuals facing financial crises. There are many inevitable reasons why an individual or business would be forced to declare bankruptcy. But many times, common sense, good financial planning, and preparation for the future can help you avoid a financial crisis that could push you to bankruptcy.
Different forms of bankruptcy are available for different circumstances. If you are contemplating declaring bankruptcy because of your finances or business, you must seek legal guidance. Your attorney can help review your situation and recommend the right course of action for your situation. Also, your attorney can enlighten you on situations that could lead you to bankruptcy so you can avoid them in the future. At San Diego Bankruptcy Attorney, we offer competent legal guidance to clients seeking to file for bankruptcy in San Diego, CA. Call us today at 619-488-6168 to discuss more details of your situation.