Many people face overwhelming debt at some point in their lives. Some of them turn to bankruptcy, using Chapter 13 bankruptcy to consolidate that debt into a repayment plan or using Chapter 7 bankruptcy to liquidate assets and eliminate remaining debts.
However, some people are hesitant to file for bankruptcy. Often, they blame themselves for the debt, so they think they need to figure out a way to pay it back and believe that they should not use bankruptcy to eliminate it. But is this debt actually your fault? The answer may surprise you, when looking at the top reasons why people file for bankruptcy.
Medical debt
Medical debt often leads to bankruptcy filings. However, there may be nothing you can do to avoid substantial debt after a serious injury or illness. Even if you have health insurance, there is no guarantee that it will cover all of your costs. You still have to prioritize your health and well-being, even if it is prohibitively expensive to get the medical care you need.
Income reduction
Many people run into debt problems not because of excessive spending (whether necessary or not). Their income has been reduced. For instance, you may carefully budget to make sure that your mortgage, car loans and other obligations fit your budget. But if your company does layoffs and you lose your job through no fault of your own, you may not be able to stick to that budget. The same can happen if your hours are cut or you have to take a lower-paying job
In both of these situations, bankruptcy may be a useful tool. Therefore, it is crucial that you know how it works and what options you have.