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Reasons For Bankruptcy

There are many reasons why individuals decide to file for bankruptcy. Unexpected medical bills, a job loss or difficult divorce can quickly put a strain on a person’s budget. Money goes out faster than it comes in. Checks start to bounce, creating even more fees and debt. The spiral is overwhelming. But crisis is not the only cause of serious debt. Many young graduates enter the work force with high hopes and small salaries that just don’t keep up with their spending habits. Some reach adulthood never learning to manage the balance between incoming and outgoing funds. Regardless of the reason, some people see their situation as hopeless and declaring personal Bankruptcy the only option. Personal bankruptcy falls under chapter 7 and 13 of the federal Bankruptcy code, created to help individuals in extreme debt start afresh and creditors recover a portion of the amount lost. Most people are familiar with Chapter 7 bankruptcy, where the person declaring sells his or her possessions or property in order to pay back the amount owed. At the end of the settlement, the individual’s debt is wiped clean, allowing him or her to start again with a fresh slate. This liquidation of assets usually takes about four months to complete before the debt is discharged. The problem is that many people filing bankruptcy under Chapter 7 have little or no assets to sell to repay their debt. Plus if spending habits created the situation, debt simply returns several years later. It’s important to stop the problems that caused bankruptcy in the first place.

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