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Top reasons when to file bankruptcy.

Filing bankruptcy should never be done lightly, but there times in which it can help. In addition, there are non-profits and other organizations that will help answer questions on whether it is the best option or not. Here are some of the top reasons when to file for bankruptcy protection. Depending on the household’s background as well as financial situation, there can be other reasons as well. However the most common are listed below.

Many people are still unsure if the reason they are thinking about filing is a good one or not. It is always a good idea to ask for other options. But be sure to explore all other possible solutions first before filing for bankruptcy.  Also, be sure to talk to a credit counselor before going down this path, as they may have options for the person.

Some reasons to explore a bankruptcy filing

1) Overwhelming debt: If you have accumulated more debt (medical, credit card, personal loans, etc.) than you can realistically pay off, bankruptcy may be an option. Maybe you can’t pay your bills due to job loss, medical expenses, excessive credit card debt, or other financial hardships.

  • Bankruptcy will allow you to eliminate the legal obligations you have to pay many of your creditors. The process of getting rid of your outstanding debt is called a discharge. The goal of this step is to reduce any outstanding debt you have to give you a fresh start. Having a clean slate will help you get your financial life in order. Whether you file through straight bankruptcy, which is Chapter 7 Bankruptcy, or through reorganization, which is Chapter 13, most or all of your debts can be erased at the conclusion of the process.

2) Get rid of high-interest loans from payday lenders, title loan organizations or other so called “Predatory Lenders” : If someone is paying unfair interest rates for a loan, and stuck in a cycle of borrowing of using more debt to pay down other bills, bankruptcy can help stop the cycle. A personal bankruptcy filing will provide a low-income family fresh financial start.

3) It will stop the foreclosure process on your home. It will allow you to effectively make home loan payments to catch up on any missed payments of your home mortgage. In addition, if your home is currently in foreclosure, a Chapter 13 Bankruptcy filing will stop the process at any time prior to the sale. So homeowners are given much more time when they file.

 

 

 

  • Bankruptcy filing doesn’t eliminate the home mortgage on your property without payment. So it is not some magic solution for the borrower. Instead filing for bankruptcy will allow you and the court to structure a plan to help you repay your mortgage arrears.

4). Bankruptcy can prevent your property or car from being repossessed by creditors. Even if a bank or a creditor has already repossessed your automobile, a bankruptcy filing can force them to return your car or other personal property that was taken. Time is a key factor here and this will only be the case if the bankruptcy was filed soon enough.

  • The past payments you missed on your car or property will be consolidated into your Chapter 13 Bankruptcy plan. After this consolidation is complete, you will no longer pay the bank of finance company, but you will rather make your monthly payments to the trustee, and that party will then pay the finance company or bank on your behalf. So the reason to file can cut back on repossessions, and also streamline how the family needs to pay their bills.

5) Eliminate, or reduce, medical bills and debt. It may be that an unfortunate illness, accident or disease can almost ruin a family and its finances. Hospital charges alone are very difficult to pay. Many individuals and families have to make choices on what bills that they will pay, a medical debt is the leading cause of over 60% of bankruptcy filings. Read more on bankruptcies due to medical debt.

  • Often, certain types of living expenses that were once important become insignificant to the large medical bills that are due. Or the underlying illness may put you into a financial hardship. So a reason to file is to help with these health care costs. If you file a Chapter 7 bankruptcy it can greatly reduce or eliminate the amount of medical bills that a doctor needs to be paid or it will eliminate the debts that are due.

6) File Bankruptcy due to a recent loss of employment. Many surveys and studies show that the loss of employment is one of the most common reasons people file for bankruptcy protection. For example, a family can get comfortable on living on two or maybe just one salary. Maybe the family takes on regular, but a manageable amount of debts. The household may pay normal, everyday bills with relative ease.

 

 

 

 

  • Then say that all of a sudden maybe one, or even both spouses lose their employment and a family must then go from two salaries to one. Or maybe they have no income coming in the door. Losing employment is closely tied to high medical debt and bills, homelessness, and other issues. Losing your job then means that this family may be left without the protection of insurance that was once provided by their employer. And sadly often times this lack of employment opportunity and lack of insurance combine to create an almost impossible mountain to climb without the help of bankruptcy protection.

7) Stop harassing behavior from creditors. Unfortunately some creditors will not take the correct course of action when trying to collect bills from the borrower. Constant calls, letters, and legal action from creditors can be overwhelming. Bankruptcy can put an automatic stay in place, which stops most collection efforts, wage garnishments, and lawsuits against the filer.

  • Oftentimes, some companies will very persistently call the home, or even work, of a particular debtor and give abusive behavior. Not only are doing things like this by the creditor unethical, in many cases it can be illegal.  Filing bankruptcy will help stop the demands of many creditors and it will stop the inappropriate behavior as well as harassing phone calls. This can provide a much-needed respite and allow the individual or business to reorganize their finances.

When to file bankruptcy8) Prevent or restore your utility service from being shut off. Filing bankruptcy can stop the utility company from turning off your electric or heating service. This is reason enough to file for a senopr or struggling low-income family. It can keep your heat or water on.

9) It can help with student debt. Yes, it is true that your student loans will not be eliminated from bankruptcy, but like many other types of unsecured debt, filing can consolidate these obligations. The bankruptcy court will help keep your student loan debt in order. It will help make the payments more manageable.

10) End wage garnishments. Some people will file for this reason. Chapter 7 Bankruptcy will stop wage garnishment from occurring. While many employers or creditors may appreciate this, having money taking from your paycheck can be devastating - especially for a low-income family. Wage garnishment is the practice of money being taking from your weekly or monthly paycheck, and it basically reduces your earnings. A Chapter 7 or 13 Bankruptcy filing will allow you to purchase necessities for both your family and you and help in this regard.

11) Challenge some claims of fraudulent creditors. Some companies that claim you owe them money are just not honest. A bankruptcy filing will allow you to challenge these untrue or illegal claims from those creditors who are trying to collect more money from you than you really owe on your bills or debt.

 

 

 

Conclusion

Or always be sure to look into other ways to get out of debt. An free legal aid attorney can assist you with filing bankruptcy or a non-profit credit counselor. They will provide the support you need to step up to and challenge these creditors as well as often illegal collection processes. There is also information on the Bankruptcy process from the US court system.

The bottom line is bankruptcy should be reviewed, assessed and not taken lightly. Filing for bankruptcy will stop fraudulent reporting and illegal activity by people that claim you owe them on some unpaid bill. But there are some pros, in some instances, for filing as well.

 

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By Jon McNamara

 

 

 

 

 

 

 

 

 

 

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