Although bankruptcy filings have significantly decreased over the last four years there will still be a projected over 750,000 cases according to Credit Slips that will file bankruptcy. The majority of these cases are filed by individuals for the following five reasons:
1. Medical Debt/Expenses. In 2005 the bankruptcy code was revised to make it harder for individuals to file bankruptcy for Chapter 7 liquidation. The rational was that too many people were going to file bankruptcy based upon credit card debts that could be repaid. Harvard University conducted a study which indicated that one half of all filings were medical related. During the height of the recession researchers at Harvard again looked at the filing statistics and their study yet again showed that over 60% of people who file bankruptcy in the US are due to medical debts and expenses. We all know that medical debt is a major cause of financial distress. What is interesting is that nearly 70% of the people who file bankruptcy due to medical expenses had some form of health insurance.
2. Reduced Income. Many people are good at budgeting to fit the income coming into their homes, problems arise though when that amount drops by even a small percentage. When a person goes from working to a fixed income like retirement or Social Security or when they have a reduction in hours at work the loss of income can be overwhelming.
3. Job Loss. Similar to reduced income a total loss of one's job, even if they qualify for unemployment, can be catastrophic to an individual's or family's ability to meet their necessary financial obligations. Let alone allowing them to service other debts such as student loans or credit cards.
4. Credit Debt. Another reason to file bankruptcy is due to credit cards. Credit debt, often built up from bridging an income gap due to job loss or incurred to cover medical debt, can easily grow to the point of being insurmountable. A good rule to keep in mind is that if your unsecured debt is over a third of your annual income you are likely just managing the interest on the debt. If that debt is closer to fifty percent of your income you are no longer in a position to manage the interest, and will never get to the principal.
5. Divorce. In addition to being a tremendous emotional strain, divorce can cause financial stress as well. Attorney fees, going from a two income household to one income, taking on your former spouses debt, these are just a few of the reasons divorce can lead a person to file bankruptcy.
If you think you may need to file bankruptcy for any of the above reasons, then call Matt Shimanek at Shimanek Law who can help you decide if to file bankruptcy is your best option or whether there is another financial solution for you. The first appointment is FREE so get help now!
To schedule your FREE consultation, call Shimanek Law at (406) 544-8049. Shimanek Law is conveniently located at 317 E Spruce St, Missoula, MT 59802.