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Medina Bankruptcy Law Blog

Why do people go bankrupt? 5 major reasons

Naturally, bankruptcy can strike for many different reasons, and no two cases are exactly alike. That said, you can look at some of the main reasons for bankruptcy in an effort to understand the trends and the warning signs.

When you do this, you can identify five major reasons for bankruptcy. People often assume it's because those declaring bankruptcy are not good at managing their money, but it's usually much more complicated than that. Many of these reasons, as you will see, are completely out of your control. Five of the top reasons are:

  1. Losing your job. You could simply become a victim of downsizing when the company needs to cut costs.
  2. Getting divorced. Your spouse may file for divorce even though you want to stay married.
  3. Still facing debt when it's time to retire. Life is expensive, and you may not be able to pay everything off before your job ends.
  4. Seeing a reduction in income. Maybe you still have a job, but you're not bringing in as much money, so debt that was once affordable no longer is.
  5. Ending up with a lot of student debt. If you're still struggling with a lot of student debt in your 30s, you may regret the decisions that you made when you were just 18, and you felt like you had no other choice if you wanted to go to college.

You don't need to fear bankruptcy

You know that you need a fresh start, financially speaking, but you feel terrified at the idea of bankruptcy. It's not the process itself that intimidates you, but the ramifications. What is that going to mean for your future? Once you file, you can't take it back. You don't want to make a mistake that is going to impact the rest of your life.

Specifically, you're worried that you will ruin your credit and never be able to get a loan again. That means no credit cards. It means no mortgage. It means no student loans, no car loans, no lines of credit at your favorite stores.

Filing for bankruptcy isn't the only way to end wage garnishment

If you were to research what happens when an account goes to collections, you'd find that creditors generally only try to work out a payment arrangement with you for a short period before they pursue other legal options to recover what you owe them. One option that creditors commonly pursue is garnishing your wages. While filing for bankruptcy can put an end to wage garnishment, there are other options that can help you achieve the same result.

Many individuals who file for either Chapter 7 or 13 bankruptcy do so because they've heard that they can stop wage garnishment. What you may not realize is that creditor calls and the withholding of your payments only stops temporarily when you file for bankruptcy. Creditors may continue calling about any accounts that weren't discharged once your bankruptcy is finalized.

Keep in mind that the Ohio foreclosure process moves fast

If you're behind on your mortgage and are concerned about losing your home, then you must act fast. The foreclosure process here in Medina and elsewhere in Ohio moves quickly. A mere 180 days may elapse between you being you falling behind on payments and the sheriff's office telling you to vacate your property. There are milestones that you can plan for at every step of the Ohio foreclosure process.

Your lender will generally wait until you're as much as 90 days behind on your mortgage before deciding to take any legal action against you. The foreclosure process is considered to have officially begun once your lender files their complaint against you. Most Ohio jurisdictions afford homeowners 28 days to respond to the bank's filing.

What exactly is business reorganization?

If your company is struggling to stay afloat because its leadership has made bad investment choices, then you may have discovered that there are a variety of debt relief options that are available to you aimed at helping you get things back on track once again. One option that has discovered that may aid you in making your debt more manageable is filing for Chapter 11 business "reorganization" bankruptcy.

You may have heard about a business reorganization type of bankruptcy and wondered what it involves. This process allows you to obtain some relief from your creditor's hounding collections letters and calls. Your company is appointed a bankruptcy trustee. That individual supervises your business as you address major problems including management or operational structures.

Will a foreclosure make it harder to rent?

You spent years renting apartments in Ohio. Then you decided to take the plunge and buy a house. Unfortunately, you lost your job shortly after buying. This led to foreclosure. You feel like this just means it's time to go back to renting, but then you realize you may have a serious problem. Will you now find it impossible to get a lease because of that foreclosure on your financial record?

This is a problem. There are cases where landlords do not want to rent to those who have gone through foreclosure. It can be a hit to your credit score, and that credit history may make them nervous that you will not pay the rent, either. It can put you in a tough position if you lose your home and you can't rent anywhere else to live.

Don't assume that you can keep your car post-bankruptcy

There are many positives associated with filing for Chapter 7 bankruptcy. One main benefit is that most debtors have an opportunity to keep most of their assets by filing for it. It's also a relatively quick process lasting only a matter of months. It's sadly not always possible to keep your vehicle during this process, though.

Provided that you pass the means test and are eligible to file for Chapter 7 bankruptcy, you'll be asked to fill out a document listing your debts, assets, exempt property and also your expenses. The trustee presiding over your case will ultimately use this information that you provide to decide what assets you can keep or have to liquidate.

Some debts remain after Chapter 13 bankruptcy

There could come a point in your life when you realize that Chapter 13 bankruptcy is the only way to improve your finances. While there are a variety of benefits, including the ability to discharge some of your debts, there are exceptions.

Here are the types of debts that are not generally discharged via a Chapter 13 bankruptcy filing:

  • Child support and alimony: If you owe child support and/or alimony, you're expected to continue to make payments even after a Chapter 13 bankruptcy discharge. Furthermore, if you've fallen behind on payments, the court requires you to catch up. Filing for bankruptcy doesn't wipe clean these missed payments.
  • Student loans: Educational loans guaranteed by the government are not discharged in Chapter 13 bankruptcy. However, there is an exception. If the court rules that repaying the loans will impose a severe hardship, they may allow you to discharge some or all of the debt.
  • Criminal fines: For example, a Chapter 13 bankruptcy filing does not affect fines associated with a drunk driving arrest. You should expect to owe this money regardless of what happens during the bankruptcy process.
  • Some types of long-term obligations: For instance, a home mortgage may extend beyond the period of the repayment plan.

Protect against foreclosure when you have financial trouble

How can you protect yourself against foreclosure? It isn't easy.

No matter how well-prepared you are for the twists and turns of life, your company may suddenly start laying people off or go out of business, leaving you abruptly jobless. A sudden health crisis could also force you out of work. You might simply find yourself with so much debt that has piled up over the years that you can't keep up with it.

Let us help you avoid wage garnishment

The deeper that you get into debt, the more serious the consequences become. One of the most serious is wage garnishment.

Ideally, you will be able to avert this ramification of your debt problems before it gets to this point. However, we understand our clients' reluctance to reach out for assistance in the early phases of financial distress. Even if your wages are already subject to garnishment, we may still be able to be of assistance.

Get the debt relief you need, the personal attention you deserve.

Call us today for a free consultation at 330-591-4729, or fill out the form below, and we will contact you.

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Medina, OH 44256

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