Most bankruptcies don't happen because someone just overspent. In many cases, a person may end up filing for bankruptcy due to an unexpected expense. Whether it is an expensive medical bill that suddenly came up, or they had a major appliance fail in their home, these unexpected expenses can become a financial hardship.
Bankruptcy can happen to anyone. In fact, even cities are known to file for bankruptcy; Stockton, California filed for bankruptcy in the 2000's with their single biggest debt being $900 million. Usually, there is a reason for filing a bankruptcy. The two most common reasons are often large amounts of debt and loss of job.
There is a lot you can do to help ward off major debt, but it can be difficult to make yourself immune to the possibility of too much debt. In 2005, the highest number of bankruptcy petitions was recorded with 1 out of 55 households filing for bankruptcy. It is important to know when bankruptcy may be the best option for you.
Paying the Minimums
Credit cards are a great security blanket for extra, unexpected expenses. When your roof is leaking or your hot water heater needs replacing and you don't have the money, a credit card can help you get the work done in a timely manner. While you plan on paying this off eventually, you may not have enough money to pay it off in the first month. This can quickly add up in interest costs. The average amount of interest on a credit card is 15%. Paying only the minimum can cause your monthly payment to skyrocket quickly. If you find yourself only paying the minimums or not even able to pay the minimums, bankruptcy may be an option.
Loss of Income
Job security is important, but during a downtime for the economy, even the best employees can lose their job. When you lose your income, paying your bills becomes much harder. While it is always best to have 3-6 months of income saved up, this can be difficult for many people. When you live paycheck to paycheck and experience job loss, paying your bills can become impossible. Bankruptcy can be a great option if you cannot afford your bills.
There are two types of bankruptcy options Chapter 13 allows you to schedule a payment plan to pay back some of your debt, while Chapter 7 erases your debt completely. If you are unsure about which option is best for your situation, you should speak with a bankruptcy lawyer, like those at Brent Sorenson & Associates, P.C., who has the knowledge and experience handling both of these types.