Historically, bankruptcy was considered a failure of planning or the result of an individual’s excessive spending due to lack of financial control. Fortunately, the mindset has steadily changed to embrace the true purpose of Chapter 7 and Chapter 13 bankruptcy – to give individuals a fresh financial start when facing overwhelming debt. In most cases, this overwhelming debt can be traced back to certain significant life events.
While individuals might build a savings to account for financial trouble that could be several hundred dollars of debt, few people can absorb thousands of dollars of unexpected bills. Many people might be able to avoid certain life events, others can happen to nearly anyone, including:
- Job loss: Either job loss or reduction in hours can represent a dramatic change to your spending power and any type of budget you have already made for yourself. Even with unemployment benefits, you will likely need to completely change your spending habits to account for the change in income. Unfortunately, items such as a mortgage, vehicle loans and debt already amassed on credit cards are not easy to move around.
- Divorce: While a divorce might represent the best decision for you and your spouse, it comes with unexpected expenses and a dramatic decrease in buying power. The separation of one combined income into two independent households can lead to significant spending changes. Additionally, money troubles might be one of the factors that ultimately drove you and your spouse apart. It is likely that you will bring these old troubles into your new future.
- Medical emergency: Many financial institutions cite medical debt as the most common factor in the majority of bankruptcies. From hospital stays and surgery to physical therapy and prescription medication, even with medical insurance, individuals might be forced to pay tens of thousands of dollars in medical debt that was completely unexpected.
- Emergency home repairs: Like the above, while insurance might absorb a certain percentage of these bills, it is not uncommon for individuals to be caught off guard by emergency home repair debt. From an HVAC system that needs to be replaced to a leaky cutoff valve that does enormous damage over time, the family could be in financial danger.
Any of these events can represent a dramatic financial setback that can lead to mounting debt and overwhelming challenges. Individuals are encouraged to consider their options for bankruptcy before they begin falling into traps such as:
- Sacrificing one bill to pay another
- Using credit cards to pay bills, and letting that debt pile up
- Making intentionally late payments to leave enough money to pay a different bill
- Exploring debt consolidation options through companies that are likely less reputable than filing Chapter 13
When the signs of financial trouble become apparent, it is wise to immediately consider the option of bankruptcy. Whether Chapter 7 or Chapter 13 is right for your unique situation, it is important to discuss your finances with an experienced bankruptcy attorney who can provide the guidance you need.