Digging Deeper Into Reasons For Bankruptcy

Mar 21st, 2014 | By | Category: Guide

Bankruptcy is often a word that is enough to make many people curl up in the fetal position and whimper. Of course, this image is a slight exaggeration, but the idea of bankruptcy can still bring about feelings of panic and dismay for many people. The reason the bankruptcy concept is so unsettling is because it would not even be mentioned if your finances were not in a sorry state and creditors were not breathing down your neck. If you are considering filing for bankruptcy, you have money troubles; big ones. Bankruptcy is typically the last resort for many people when other types of debt settlement or debt consolidation are not possible. People generally file for bankruptcy for a small number of different reasons.

Perhaps the top reason that people file for bankruptcy is to remove the obligation to pay back debts. One of the main elements of bankruptcy is that all of your unsecured debts are wiped away and you do not have to pay them. Bankruptcy also damages your credit and you may lose assets, so it is not just a simple way to avoid paying your debts, but it will wipe the slate clean. Some of the reasons your situation may have gotten so bad in the first instance are from taking on more forms of credit than you are able to pay.

In the same vein.

A change in your financial situation may also facilitate filing for bankruptcy. Sometimes, a person may lose their work and then the handful of monthly credit payments start to decline by the wayside. Having a couple of credit cards, loans or lines of credit mightn’t be problematic if you are working, but if your income is taken away, making those payments and paying for necessities may become impossible. In these situations, bankruptcy might remain the only way to go out from under the debt.

If you still have your job, but have incurred new expenses such as medical bills due to an injury or illness, this may also end up in a bankruptcy. Medical bills can add up fast, especially if they’re for a chronic or long term illness. It is not too far fetched to understand how credit payments might be missed when someone’s health is at stake. Bankruptcy may also stop the foreclosure of your house or prevent your car from being repossessed depending on where you live. Some bankruptcy plans can put the brakes on creditors taking your property, and while it will not wipe out the amounts owing, you’ll receive a plan to help bring them up to date.

Fortunately, there are a few ways bankruptcy can be avoided in the event of a medical debts. To make this happen, individuals have to first negotiate with their healthcare providers for forgiveness and discounts in repayments. Moreover, if hospital bills can be limited, especially for the uninsured, bankruptcy can be avoided. Another way of avoiding bankruptcy is to get charity on medical bills.

The Affordable Care Act that is to enter into effect in 2014 has provisions that can lower medical debt. This Act, also being called the Obamacare will help people not file for bankruptcy in the event of a medical emergencies. It is being hoped that with the Act being rightly used, there will be lesser cases of bankruptcy.

Chapter 7 liquidates all your assets and repay your debts in one go. Medical bills are considered unsecured debts much like credit cards under Chapter 7 bankruptcy. Since they’re unsecured debts, they can be completely wiped out and you’ll be discharged of your medical bills. However, if your treatment is still going on, it is better to let your debt accumulate so that you will be able to file for bankruptcy in one go. You wouldn’t want to acquire new debt right after filing your bankruptcy.

Chapter 13 lets you reorganize your financial situation allowing you to repay your debts, for a term of 3-5 years. Medical bills are considered as unsecured debts even under Chapter 13 and thus can be discharged. However to get your medical bills discharged you’ll have to first pay off your secured debts under the repayment plan.

No one ever wants to have to think about bankruptcy as an option, but if your debts really are closing in on you, it may well be the best solution. A debt solution company can sit down with you and go through all the different options. These may or may not include bankruptcy. By talking with professionals, at least you will know that bankruptcy was the most logical choice for your specific situation.

QUESTION: why is bankruptcy bad for Americans?
I'm not quite sure what bankruptcy is, but I am writing a persuasive speech on Universal Health care, and I read some stuff about medical bills being a huge reason for bankruptcy..to make my speech more persuasive, I need to know what bankruptcy does to other Americans, and why it's bad.

  • Bankruptcy happens when the bills someone has take more money to pay than the person is earning in income. So with housing costs, utilities, vehicle costs, insurance and credit cards bills every month adding up to most of a persons income, then you thrown in a major medical expense. Now you have to payout more per month than you make. Where does the extra money come from? If you can't find more income then you have to declare bankruptcy to discharge those extra bills. You lose your house, many of your items and maybe even your wheels and then you start all over again. While many Americans do have some form of medical insurance it may only cover part of the costs related to the illness and any operations needed. The cost of a hospital stay may outstrip the amount allowed by your insurance policy (extended stay) and then the follow up costs of medications and therapy (if needed) and other extras such as mobility aids etc. Since not everything may be covered these added expenses can be crushing for a family that has a large mortgage, vehicle payments etc. If a family has a huge medical expense and it's over $150,000 and insurance only covers the first 75,000 then the family must cover the extra. The hospital or whoever want their money and allow payment plans but not amortized over 30 years. So an added huge monthly payment. Most families do remortgage their houses to help pay these extra bills, but today many people can not afford that at the new mortgage rates and the fact that many have done remodelling so have little equity to qualify for much money. Further the lower house prices of the last few years has devastated equity values so the people can not borrow against their house. Now you add in the factor of a person with a serious medical condition can not work so the family's income has been reduced by half or even 25% and how do they pay an extra 25% per month. Most families over the last 10 years or more have bought houses larger or more expensive than they should have (due to low mortgage rates) and now with values being down, poor job market and costs rising they are hard pressed to afford things. Most Americans do not have large savings accounts and this is part of the problem. Ideally people should live more affordable and save at least 6 months of payments in case of a problem with income. How does universal health care differ? In many places that have it the cost per month is relatively low as all citizens pay one way or another to fund it. Therefore instead of the 300/month or more in the US they pay a low amount like $50 in a tax per month.


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