When we hear of someone experiencing bankruptcy, we often think of him as a failure. We even believe that he should be ashamed of his situation. Sometimes, we also think he wants to get away with his financial responsibilities. If you feel this way, take a closer look at this matter.
What Is Bankruptcy?
First, we have to know what bankruptcy is. It is a legal proceeding filed by a person or an establishment if they have an outstanding debt problem that they cannot pay to their creditors. By doing it, they will be dismissed from some or all of their obligations (see more).
Causes Or Reasons For Filing Bankruptcy
To understand more about these outstanding debt problems that people or establishments are unable to pay, let us identify the causes or the reasons while people are filing a legal proceeding for it. Following are some specified reasons:
1. Poor Management Of Finance
Poor financial management is probably one of the most common reasons of all. This includes people who are using credit but didn’t look thoroughly at the bigger picture and miscalculate the consequences, especially those who don’t have a stable income to take care of the charges in their credit cards. Good examples also are buying a house or a car without a steady job.
This means that when you decide on purchasing something, you should check first your income to know if you are capable of paying for it. If yes, you may buy it, but if not, maybe next time!
When you are married, you both help each other with all the expenses. Your income is also joined together to take care of all fees, including debt problems. Splitting means splitting of income, and a possible increase in expenditures and debts becomes impossible to pay.
3. Loss Of A Job
Whether it’s unexpected or caused by your negligence at work, losing a job is a significant factor in your financial aspects. Without a job, where would you get money to pay your debt or spend for your needs? Losing one job out of your many jobs would still affect your finances because you will earn less than you used to.
Another cause of losing a job is the failing economy of your state.
4. Excessive Medical Expenses Due To Illnesses/Disability
If you have a disability or illnesses that need constant and unending medication and medical attention, then your expenses never stop. If you do not have enough savings or do not have a stable income, this would be a problem.
5. Unexpected Emergencies
This includes damages caused to your properties like a car break down, house damages caused by calamities, etc.
Having enumerated the causes or reasons for filing a bankruptcy, we can say that although some are consequences of an action, there are also circumstances caused by something unavoidable. This means it is not a basis for us to tell if a person failed, and we definitely cannot say it is something to be ashamed of.
However, as much as possible, make all efforts to avoid financial crises, and if ever something unexpected happens, make sure you have prepared something for it. Make sure to have savings and contingency funds.
What Happens If You File For Bankruptcy?
Well, it depends but you either will be given time to pay part of your whole debt or have a part of it abolished. Also, creditors will not be able to deduct money from your account or get something from any of your properties.
It will also depend on whichever you will file, Chapter 7 or Chapter 13 bankruptcy.
Also called liquidation bankruptcy, you have to get something from your assets to pay even just a portion of your debt problem. Not any of your assets could be considered, though. Others are not allowed, like your car, retirement account, and your house.
This is designed for people who do not have much for an income and cannot pay back all or even just a portion of what he owes. So if you have a high income, you are not eligible. On the bright side of this, you are quickly discharged from your debt problems and have a fresh start since it usually takes three to five months for you to be released.
An individual and businesses may apply for this.
This is referred to as the reorganization bankruptcy. With this type, you will be given a payment plan to pay to the creditors for a specific time (usually three to five years before you will be discharged). The good thing about this is that you get to keep your properties while paying for your balance.
Only an individual can apply (including businesses that are sole proprietorship). One should also have a regular income to be eligible.
This type of legal proceeding is applicable only for businesses.
How To Apply
This is a serious matter where you are advised to seek help from a lawyer specializing in this. They know all the qualifications, what type fits your situation, and the best way to do it. There are also specific courts handling this. Check this for more information: https://www.justice.gov/ust/bankruptcy-information-sheet-0.
Please take note that you will be paying a separate fee for the processing/filing and another fee for your lawyer (for his services). You might need to prepare your budget for this. You must have between $1,500 and $4,000 depending on which type you filed and how complicated your case is.