Why Do People File Bankruptcy?

Quite simply, people file bankruptcy because they owe more money than they can pay, and they need a fresh start. This fresh start is available to honest yet unfortunate debtors. Honest debtors complete paperwork accurately, are forthcoming about all their debts and assets, fully cooperate with trustees (people who supervise bankruptcies for judges), and otherwise color in the lines. Some common kinds of misfortune are outlined below.

In a perfect world, honest and unfortunate debtors would quickly obtain the relief they need and deserve. But we don’t live in a perfect world. So, a Chicago bankruptcy attorney must help debtors throughout the Chapter 7 or Chapter 13 process. Chapter 7 eliminates most unsecured debts in under a year. Chapter 13 gives debtors up to five years to pay past-due mortgage and other secured debts.

Medical Bills

Medical bill inflation has risen faster than overall inflation since 2010. High medical bills force about a half-million families into bankruptcy every year. That figure represents well over half of bankruptcy filings in the United States.

Most doctors have very little patience with unpaid accounts. They quickly refer them to aggressive debt collectors. Most debt buyers pay money upfront for the right to collect an unpaid account. Therefore, they use borderline illegal, and even outright illegal, collection methods. Such harassment is the last thing a family struggling to make ends meet needs to face.

While the case is active, bankruptcy stops debt collection. Furthermore, bankruptcy erases the legal obligation to repay medical bills, at least in most cases. So, after the judge closes the case, it’s illegal for that debt buyer, or any subsequent company, to collect that debt.

Bankruptcy also gives debtors choices. Many debtors reaffirm (voluntarily agree to pay) certain medical bills, to stay on a doctor’s nice list. A Chicago bankruptcy lawyer often negotiates more favorable repayment terms in these situations.

Job Loss/Economic Downturn

If recessions force multinational companies into bankruptcy, imagine what they do to families living hand to mouth. A few weeks without a paycheck, or an unexpectedly lower paycheck, could have devastating consequences.

Most families have little or no savings. Therefore, when their incomes drop, they often rely on credit cards. This approach might work in the short term, but it always causes extensive long-term financial damage.

Other families skip auto notes and other secured debt payments in these situations. If debtors fall more than two or maybe three payments behind, it’s almost impossible to catch up, unless the Automatic Stay keeps ravenous creditors at bay.

Poor Financial Habits

At the risk of sounding like your mother, many debtors spend too much and save too little. That attitude is sustainable, as long as the sun always shines. In most cases, that expectation is unrealistic.

Credit card bills quickly overwhelm most families. They can build modest savings accounts almost as quickly. Put $100 or so a month into a cookie jar or onto a prepaid debit card, and in less than six months, you’ll have a good-sized emergency fund.

Even a modest fund could be the difference between weathering the next financial storm of life and filing bankruptcy yet again. 

Speak With a Detail-Oriented Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. The sooner you reach out to us, the sooner we start working for you.

Source:

scholarlycommons.law.emory.edu/cgi/viewcontent.cgi?article=1248&context=ebdj