Declaring bankruptcy is not just about losing your assets. The shame, stigma, and emotional turmoil associated with bankruptcy are enough to make anyone feel like a failure. Little wonder most people only turn to bankruptcy as a last resort.
Bankruptcy laws are primarily designed to ease the financial pressure on people who can’t pay their bills – and not to punish them. However, many people drag their financial burden for too long before considering bankruptcy, mainly because they don’t know when it’s appropriate. That’s why we’re going to explore seven instances where you should consider filing for bankruptcy.
- Extended Unemployment Period
It’s so painful to watch money leave your account while no income comes in. That’s what happens when you’re unemployed. The main problem with losing your job is that you can no longer afford the lifestyle you’re accustomed to. Consequently, your debt begins to pile up at an astronomical rate. Unemployment compensations are barely enough to cover your basic expenditure, let alone cover your debt. If you’re unable to get a job on time, then you might have to file for bankruptcy.
- Overwhelming Debts From Your Small Business
Most small business owners not only put in their savings but also have to take out loans to realize their business dreams. Unfortunately, 20% of small businesses fail within the first year, 50% falter within five years, and only a third manage to survive for ten years. If you’re unlucky to have your business fail for whatever reason, you can end up in enormous debts with no income to pay back.
Chapter 7 bankruptcy allows you to use certain personal and business assets to pay creditors while the remaining unsecured debts are discharged. Chapter 13 bankruptcy, on the other hand, allows you to restructure your debt so you can pay it back within the next three to five years. As a result, your assets are left untouched. If you believe your business can still survive, you may opt for Chapter 13. But note that failure to keep up with the new payment plan will result in the liquidation of your assets.
- Catastrophic Health Crisis
You’ll never fully comprehend the veracity of the popular quote “Health is wealth” until you or a loved one experiences a catastrophic health crisis. A major health crisis can drain all your savings and force you to sell your assets.
Asides from the medical bills you have to cover, there are a whole array of other expenses. This may include transportation costs and the cost of re-adapting your home for their medical needs.
Not being able to work due to a health crisis further exacerbates the situation. Keeping up with your mounting debt might become impossible, and bankruptcy may be the most viable option.
- Costly Divorce
Divorce can have a devastating impact on your finances. It’s not uncommon for couples to fight over how the money will be split. For starters, this means hiring a great divorce attorney – and that costs money.
A divorce settlement can even be more costly if one of the spouses has obligated him/herself to be responsible for most of the debt in the marriage.
After a divorce, you’re back to your single life, and you have to rely on a single income. With child support and other bills to cover, the financial pressure might be unbearable.
- Student Loan Debt
To be clear, bankruptcy cannot wipe secured debts like mortgages and auto loans. While bankruptcy will discharge most of your unsecured debts, some cannot be discharged. Examples include student loans, child support, and alimony.
In rare instances, it is possible to get your student loan discharged in bankruptcy. However, you have to prove undue hardship such as a permanent disability that makes it impossible to work with your degree or you have to have a long track record of on-time payments to prove you had the intention of repaying before your circumstances turned for the worse. The burden of proof is on you – and it’s usually difficult to prove.
- You’ve Been Sued
Ordinary people are sometimes sued for insane amounts. In most cases, they cannot afford to hire an attorney to defend themselves, let alone pay the judgment. Provided the charge is not related to fraud or fiduciary duty, you can get it discharged by filing for bankruptcy.
- Streak of Catastrophes
When troubles come one after the other, we’re better equipped to handle it. However, when they are bundled together in a massive storm, they can become overwhelming. Imagine a scenario where you lose your job, and at the same time a medical crisis happens to a loved one, your car breaks down, you’ve exhausted your emergency fund, and you’ve maxed out all of your credit cards. Filing for bankruptcy might be your only way out.
Contact us here for more details and information regarding the financial questions you may have regarding bankruptcy.