Reasons Why People File Bankruptcy

Most bankruptcy filings are done by consumers dealing with personal finance issues. This includes debts caused by overspending, a lost job or a personal crisis. 

While bankruptcy has a stigma associated with it, it is a legitimate way to get help when you are overwhelmed by debt. Bankruptcy will allow you to discharge certain debts and prevent creditors from calling or contacting you. 

Unexpected Medical Expenses 

A Harrisburg PA bankruptcy attorney is often faced with clients who are struggling with overwhelming medical bills. Whether due to long-term sickness or a sudden disaster, these expenses can quickly deplete savings and emergency funds, leaving them in over their heads. When paired with the loss of a job, the financial burden can become unbearable. 

It is no surprise that medical costs are one of the leading causes for people to file for bankruptcy. Even those with insurance can find themselves facing unmanageable debts due to co-pays and other out-of-pocket expenses. In a recent study, researchers from MIT were able to pinpoint the percentage of bankruptcies that can be tied back to health care expenses, confirming previous research that healthcare is a top reason for bankruptcy filings. 

Job Loss 

The last thing a business wants is to lose key employees. But that is exactly what can happen when a company files for bankruptcy. 

In addition, a business owner may also face lawsuits from creditors. Those lawsuits can lead to wage garnishments and other collection activities. The resulting debt can be overwhelming for small business owners. 

Many people file for bankruptcy because of bad financial decisions. These include overspending or taking on too much credit card debt. If these debts become unmanageable, they can lead to missed payments or even foreclosure. 

Other reasons that people file for bankruptcy include a hefty mortgage or a house that is worth less than they owe on it. Defaulting on a mortgage can lead to foreclosure, but filing for bankruptcy can help to stop foreclosure activities temporarily. It can also allow for a repayment plan. It is important to talk with an attorney before making a decision about filing for bankruptcy. 

Unpaid Utilities 

The need for heat, air conditioning, electricity and water in the home is a major factor that can lead people to seek bankruptcy. Many homeowners may also be facing escalating costs for cable, satellite and internet services, which can result in them seeking a bankruptcy attorney quickly. 

Unpaid utility balances may lead to disconnection of service by the provider, resulting in additional debt and expensive reconnection fees. Additionally, these

debts are reported to credit bureaus and can negatively impact one’s credit score. 

Fortunately, most utilities comply with Section 366 of the Bankruptcy Code and continue to provide services to debtors in bankruptcy provided that they receive some type of post-petition deposit (typically a security deposit) to ensure future payment. However, limited outreach, household inertia, and social stigma often lead to low participation rates in assistance programs designed to assist struggling customers. This is a problem that needs to be addressed. It would benefit both consumers and utility providers. 

Foreclosure 

A major reason people file bankruptcy is to stop foreclosure. Foreclosure is a process that allows your lender to sell your home at auction to recoup the debt you owe them. This is a serious and long-lasting financial problem that can leave you without the security of your family’s home. 

When you file Chapter 13 bankruptcy, the court’s "automatic stay" upon filing halts foreclosure proceedings while you develop a repayment plan. During this time, you can continue to make your mortgage payment and catch up on any late payments. 

While some types of bankruptcy require you to liquidate qualifying property, many assets are exempt from seizure and include your home, equity in other real estate, retirement savings, personal possessions and social security checks. In addition to preventing foreclosure, Chapter 13 bankruptcy can also help you avoid a deed in lieu of foreclosure or short sale. In some cases, your lender may agree to negotiate a loan modification with you.