Top Five Reasons People File Bankruptcy

Between 2008, when the Bankruptcy Reform Act took effect, and 2019, the bankruptcy filing rate declined steadily. Then, largely because of coronavirus shutdowns, the voluntary petition filing rate increased in 2020. Many observers expect the filing rate to explode in 2021.

Many people consider bankruptcy to be a sign of failure. But that’s usually not the case. As outlined below, people usually file bankruptcy due to events which are largely beyond their control.

A Chicago bankruptcy lawyer helps these families take control over their own finances once again. Chapter 7 discharges unsecured debts in only a few months. Chapter 13 gives families up to five years to make up past-due mortgage payments and other secured debt arrearages.

Medical Bills

Medical bankruptcies account for over half of all bankruptcy filings in Illinois. The Affordable Care Act, which was supposed to end this epidemic, has not made as much of an impact as pundits had hoped.

Frequently, these filers have health insurance. But Medicare and most other health insurance plans only cover about 80 percent of chronic illness treatment costs. 20 percent of cancer treatment costs is more money than most families have.

Illness and injury is almost always entirely beyond the debtor’s control. Even something like a smoker contracting lung cancer is almost a statistical anomaly.

Job Loss

Most Americans do not have the cash to cover a $400 emergency expense. These families live strictly hand to mouth. Thus, a few weeks without a paycheck could be financially devastating.

The good news is that job loss is usually temporary. So, if a family falls behind on bills, it can file Chapter 13 and take advantage of both the Automatic Stay and the protected repayment period. This combination helps these families recover from temporary job loss even faster.

Economic Downturn

This factor is closely related to job loss. Many people are business owners or full-time freelancers. These enterprises are extremely sensitive to economic climate changes. They usually have little or no cash reserve. On a related note, many people rely on side hustles, like driving for Uber, to pay the bills. When the economy is down, these temporary gigs often quickly evaporate.

Divorce/Separation

In many situations, separation and divorce is a double whammy. Divorce usually means high attorneys’ fees. Additionally, when one household splits into two, individual expenses increase dramatically. Much like job loss or illness, divorce is usually beyond the debtor’s control.

Many divorces are slow fade marriage dissolutions. The parties anticipate a divorce many months before someone files, usually because they informally separate. In these situations, it is usually best to file bankruptcy before filing divorce. This move reduces the size of the marital estate and therefore makes the divorce cost less money.

Credit Misuse

A few people spend recklessly and therefore fall into bankruptcy. But more frequently, credit card overuse is related to one of the aforementioned financial storms. For example, many people who lose their jobs are forced to live on credit cards. These people sorely need a fresh start, and that’s what the Bankruptcy Code provides. 

Reach Out to Experienced Lawyers

If you are going through financial distress, the circumstances are probably not your fault. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

bloomberg.com/news/articles/2021-01-05/u-s-bankruptcy-tracker-pandemic-spurs-most-filings-since-2009