So many of us encounter financial hardship at some point in our lives. Ranging from small, unexpected bills to catastrophic expenses, even the most prepared can find themselves up against a monetary wall. In extreme circumstances, individuals may find themselves staring down the barrel of bankruptcy. Any type of debt relief will bring some resolve to your life.
But how do you know if it’s time to explore debt relief options like bankruptcy?
Read on for an overview of causes that can lead to filing and red flags you should look out for.
3 Common Causes of Personal Debt
Financial trouble arises for an infinite number of reasons, but three of the most common are inappropriate credit card usage, medical bills, and major life changes. We’ll discuss each of these below, as well as some signs that you should consider bankruptcy to help with your debt relief.
Credit Cards
Recent data reported by Bankrate indicates that over half of Americans over the age of 18 are holding credit card debt, meaning they are not paying off their balance in full each month. Even for those with excellent credit to begin with, credit cards come with high interest rates.
For many people, it’s not one exorbitant credit card purchase that puts them in a financial hole – it’s the small purchases and interest that add up over time until you’re suddenly carrying thousands of dollars in debt! Unfortunately, some worsen their own situations by opening up new credit cards to pay current balances, ending up in a vicious cycle of ruined financial record.
Medical Bills
It’s an unfortunate reality that a majority of citizens don’t have enough savings to cover unexpected medical expenses. Whether it be an injury or the occurrence of an unforeseen illness, the costs associated with doctor visits, tests, and treatments can add up to astronomical amounts. Even with insurance, patients may not be able to cover these costs and risk dire financial consequences in addition to medical stress.
Major Life Changes
Everyone experiences a monumental life transition at one point or another, but some carrying greater financial burden than others. For example, losing your job or having your hours reduced may mean you can’t afford to pay your bills. In many cases, unemployment benefits simply aren’t enough to match your needed budget.
It could also be a newly suffered disability or simple aging that prevents you from working a full-time position. Regardless of the reasoning, suddenly it’s easy to fall victim to over-using credit cards or even obtaining high-interest personal loans.
Another sad and unexpected financial hit can come from a divorce, especially in cases where one party must pay out a hefty sum to the ex-spouse. Additionally, each individual has to dole out from their own pockets to cover lawyer and other case-related fees. Before you know it you’re drowning in a pile of invoices.
What is Bankruptcy
Bankruptcy is the most extreme option to deal with overwhelming personal debt. But what is it, exactly? In simplified terms, bankruptcy is a process that helps someone get reprieve from their debt and figure out a repayment plan.
When to Consider Bankruptcy
Bankruptcy should be the last line of defense in your personal debt arsenal and considered only when the debt is officially insurmountable on your own. If you find yourself behind on major assets, particularly your home, that’s a major red flag you should stop and consider filing.
Some people don’t realize you can try to work directly with creditors you owe, and in some cases, they may be willing to work out alternative terms to relieve some of your financial obligations. However, if creditors have ceased being flexible with you, it could be time to consider bankruptcy.
In extreme cases, creditors may garnish an individual’s wages, meaning they take a portion of the person’s income and apply it to their debt(s).
The problem? You now have less income to help cover other bills, risking a continued cash flow problem. And what happens when we don’t have enough cash? Those credit cards start looking very appealing again.
How Does Bankruptcy Actually Help?
Filing for bankruptcy gives individuals a clean financial slate and a realistic plan to remain debt-free. Additionally, after someone files, creditors are legally required to stop harassing phone calls, garnishing wages, and repossessing assets. Many report huge improvements in their mental health simply from the halted collection efforts that they were otherwise plagued with multiple times a day.
Downsides to bankruptcy?
Obviously, bankruptcy has consequences you’ll have to deal with for quite some time. Depending on the type of bankruptcy filed, the negative mark can stay on your credit report for seven to ten years! Because creditors can access these reports, it may be difficult to obtain any credit or you’ll suffer high interest rates when you do.
Further, it’s possible, if not likely, that you’ll lose some assets in the process. You may be required to sell off certain belongings and apply those funds to your debt total. While the stopped collections did return some semblance of peace, losing assets through selling, auction, or repossession can be another ding on your mental state.
Bankruptcy Solutions and Assistance in Massachusetts
If you ask anyone what their leading cause of stress is, many of them would answer money. It can feel incredibly isolating to find yourself in such rough financial waters, but you’re not alone.
Hines Law Office is a bankruptcy law firm with more than twenty years of experience located throughout the greater Boston area. We pride ourselves on helping our clients break free from their debt so they can move forward without the heavy weight and burden of owing creditors. Gaining control of your finances through Chapter 7 or 13 filings can help you live the life you deserve. Give us a call today so we can help you get your financial goals back on track!