Bankruptcy isn’t exclusive to the poor or inevitable for people who don’t budget. In fact, many people need debt relief due to situations outside of their control. Keep reading for common reasons why people go into bankruptcy and remember: you’re not alone.
Medical Expenses
As of September 2020, Americans owe up to $45 billion in medical debt.
Medical bills can pile up because of:
- A car accident
- An emergency surgery
- A terminal illness treatment
- A lack of insurance coverage
- And more
Millions of Americans were hospitalized in 2020 due to the ongoing COVID-19 pandemic. Additionally, many people have lost their insurance coverage due to layoffs and furloughs from their jobs.
In many cases, medical debt is one of the most personal forms of debt. The physical pain of recovery and the emotional anguish of medical costs combine to destroy your peace of mind. Creditors, however, could care less. They often ruthlessly pursue payment with little sympathy for the debtor, and as the U.S. continues to grapple with the fallout of the pandemic, more Americans are finding themselves between a rock and a hard place.
Bankruptcy can help you get relief from medical bills. Medical debt is usually unsecured, meaning the creditor or lender did not collect collateral to guarantee the loan or purchase. Because of this, medical bills are dischargeable and can be forgiven during the bankruptcy process.
Unemployment
As alluded to in the previous section, millions of people in the U.S. have lost their jobs due to COVID-19. The pandemic is responsible for a 6% jump in consumer debt, raising the total debt amount to over $800 billion.
Unemployment during the pandemic peaked at 14.8% in April of 2020 – the highest percentage ever recorded. As a result, millions of Americans lost their jobs from March 2020 – March 2021 and any benefits, insurance, and income that comes with employment.
At the most basic level, bankruptcy can help the debtor discharge unsecured debt in order to reach a more manageable financial position. This can happen through liquidation, which sells property in exchange for funds to pay off debt, or reorganization which allows the debtor to create a three or five-year payment plan. This can be a welcome relief to many people who have been unemployed due to the COVID crisis.
Divorce
Divorce and separation numbers have increased slowly over the last ten years, and as a result, many families have found themselves in a tough financial position. The pandemic has complicated the circumstances for many people, but in general, divorce is a common cause of financial problems.
After divorce, spouses can no longer depend on a combined income to support themselves and their children. Instead, the court evaluates each spouse’s financial position to determine a fair amount for child support and alimony. Still, this puts many people in a tough situation especially if they chose to stop working to stay with the children or discontinue their education to support their spouse.
While bankruptcy does not discharge court-ordered financial obligations like child support and alimony, discharging other debts can help free up your finances to make those payments on time. Bankruptcy may also give you leverage with the court to modify an existing court-order.
If the judge sees that there is a legitimate reason why the original court order can no longer be upheld, they may be able to help you and your former spouse reach a new agreement that is more affordable for all parties involved.
Bankruptcy Isn’t the End
Whether you’re struggling with medical bills, unemployment, or divorce debts, bankruptcy can provide much needed relief. It’s important to understand that bankruptcy isn’t the end, but rather the opportunity for a new beginning. With the right guidance and a measure of patience, a better financial future can be within your grasp.
Speak with an attorney at Buchalter & Pelphrey Attorneys At Law for more information.