Being Pushed to Bankruptcy?

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Sometimes financial hardships become so difficult that filing bankruptcy seems to be the only alternative, but there probably also are nagging doubts that come with such an important decision. Unfortunately, these doubts should be taken seriously, because nowadays there are many people who will try to sell you prematurely on the idea of bankruptcy. Remember this: every time a bankruptcy is filed, someone is making money.

General problems that can lead to bankruptcy include personal crises, employment changes, family pressures, health concerns, and especially financial uncertainty. This uncertainty is that terrible feeling of doubt: Is the light at the end of the tunnel really the end of the tunnel? Could the light actually be an oncoming train?

Instead of being pushed into bankruptcy by a professional, you need to be brought to it inevitably by your problem. You should not file just because a friend, family member or respected leader says that it is ok. Do not blindly agree to file without knowing what you are doing.

The two most common types of personal bankruptcy filings are Chapter 7 and Chapter 13. Chapter 7 is used to end the cycle of debt, often having been caused by a personal or medical crisis, while Chapter 13 is used to save a home and to repay debts.

Listed below are five common reasons that cause individuals to file for bankruptcy. For each, we will consider whether or not there are alternate solutions to the problem.

1. “Enough!”

Creditors are quite good at making day-to-day life unbearable, and non-stop calls border on harassment. Option: You have a right to end creditor phone calls! Consult an attorney for more information.

2. “They’re threatening my wages!”

Option: State and federal law gives you a right to maintain a minimum amount of money to pay your bills based on low-income standards. Speak with an attorney to determine what can - and what cannot be - garnished. Never sign an agreement to garnish wages without talking to a lawyer or legal aid clinic.

3. “I am going to lose my car!”

Option: Most lenders do not actually want to repossess a car. Contact a credit counseling company to work out a payment plan. Furthermore, even if your car was repossessed, this would be much less damaging to your credit than would be a bankruptcy!

4. “I don’t have medical insurance!”

The single largest financial cause of bankruptcy is medical expenses, and this is reason for concern. Even with insurance, hospital costs have been going up almost 20% every year. Option: Before filing to discharge medical debts, consider state insurance for low-income individuals. If this will not work, every hospital should have a case worker who generally knows alternative funding sources, and usually is very willing to negotiate debt and payments. Additionally, hospitals are required under law to provide a certain percentage of their gross revenue every year to those who cannot afford to pay.

5. “My company is downsizing, and I am going to be unemployed!”

Option: In the event of a job loss, you immediately should seek professional help to plan your budget for at least the next three months. There are programs you may be interested in that will provide you with training in a new skill, and some even offer compensation. Additionally, you can visit a vocational counselor to inquire about state jobs, and potentially could become employed (insist on benefits!) within one week!

Filing bankruptcy always should be a last resort. While filing as a reaction to life’s curveballs might be understandable, it may not be in your best interest to do so. Do not allow yourself to become convinced to file before you explore other options to reduce existing debt.