Top Five Reasons People File Bankruptcy
In a nutshell, most people file bankruptcy because they owe more money than they can repay and they need a fresh start. As outlined below, the specific reasons most people file bankruptcy are at least mostly beyond their control. Everyone files bankruptcy to take advantage of the benefits of this program, such as the Automatic Stay that stops most forms of creditor harassment.
A Chicago bankruptcy lawyer maximizes the benefits of bankruptcy. This process begins with a thorough case evaluation that includes the type of bankruptcy best suited for your needs. Then, a lawyer accurately files the complex paperwork and strongly follows through. This follow through includes representation during adverse actions and post-bankruptcy credit recovery assistance.
Creditor Actions
We mentioned the Automatic Stay and its effect on adverse creditor actions above. These adverse actions include:
- Foreclosure,
- Creditor lawsuits,
- Repossession,
- Wage garnishment, and
- Eviction.
Usually, the Automatic Stay takes full effect as soon as debtors file their voluntary petitions and a Chicago bankruptcy lawyer delivers actual notice to the creditor or other pertinent party. A “pertinent party” could be a towing company, a law firm, or a loan servicing company.
Chapter 7 often quickly discharges the debt which caused the adverse action. Chapter 13 extends the Automatic Stay up to five years, giving debtors and their lawyers plenty of time to develop a plan B.
Tax Lawsuits
We put tax actions in a special category because, although most unsecured debts are dischargeable in a Chapter 7, back taxes are priority unsecured debts which are only dischargeable in certain situations. The tax discharge rules are:
- Past-due income tax,
- Taxes are at least three years old,
- Returns have been on file for at least two years, and
- Tax debt hasn’t been assessed (calculated) in the past six months.
Even though the IRS is a government entity, the Automatic Stay still applies. Additionally, in many cases, the IRS cannot tack on penalties and interest to tax debts while the case is pending.
Business Failure
A significant number of business ventures fail. Many entrepreneurs borrow heavily to fund their startups. Frequently, they sign personal guarantees as a condition of these loans. Most business loans, including Small Business Administration loans, are dischargeable in bankruptcy. But because of the personal guarantee, both the business and the individual who guaranteed the loans must file bankruptcy in most cases.
Separation, Divorce, and Other Family Issues
Usually, divorce increases living expenses and splits household income. The strain is too much for many families to endure. That’s especially true if divorce-related expenses, such as child support, alimony, and attorneys’ fees, enter the mix. Additionally, if one spouse defaults on a credit agreement, the other spouse may become liable for the payments.
This cause of bankruptcy is so common that many divorcing couples file bankruptcy before they file divorce. That way, the Automatic Stay doesn’t hold up the divorce proceedings. Additionally, since bankruptcy discharges credit card, medical bills, and other unsecured debt, the divorce property settlement is less time-consuming and therefore less expensive.
Medical Bills
Despite passage of the Affordable Care Act, medical bills remain the number one cause of bankruptcy filings in the United States. Even if individuals have health insurance, the cost of expensive healthcare, especially things like surgical proceedings and cancer treatments, is unaffordable. Moreover, bankruptcy helps people avoid wage garnishment or lawsuits over medical bills.
Reach Out to a Compassionate 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. Convenient payment plans are available.
