What Are The Most Common Reasons People File Bankruptcy?


First, let me tell you that you are not alone. You are not the only person in New York or the United States who is struggling with debt. Millions of people each day sit in their home and try to decide if they should pay their rent or mortgage before they pay their car payment or their utility bill.


Yes, some people abuse credit cards or have poor money management skills, and that is why they are in debt over their heads. However, most people are in debt because they have experienced a financial crisis that they could not foresee or avoid. Whatever the reason, filing a bankruptcy case can often relieve the debt problem and give the person a fresh start.


The Supreme Court Explains Bankruptcy


Congress enacted bankruptcy laws to protect debtors who are unable to pay their debts. Our bankruptcy laws are designed to provide individuals and companies a way to repay or discharge debts by legal means — not to punish those who are unable to pay their debts.


The Supreme Court stated the purpose of bankruptcy very clearly in is 1934 decision in the case of Local Loan Co. v. Hunt when it said that bankruptcy “gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”


A bankruptcy case gives the debtor a “fresh start” by releasing the debtor from personal liability for specific debts, regardless of the reason why the debtor needs the relief. With that said, there are some common reasons we see for filing bankruptcy.


Why Do People File Bankruptcy?


Medical Bills — It is a common myth that there is a “medical bankruptcy.” However, medical bills are such a common reason for filing bankruptcy that many people believe in the “medical bankruptcy” myth. Even if you have great health insurance, a medical emergency, such as a personal injury accident or sudden illness, can result in thousands of dollars in medical debt that you cannot pay.


Unemployment — The loss of a job or a reduction in income is another common cause for filing bankruptcy. Many people live from paycheck to paycheck with very little savings. If they are unable to find a job quickly, they may need the assistance of a bankruptcy filing to get rid of debts they cannot pay, especially if they are forced to live on credit until they can get back on their feet again after finding another job.


Divorce or Loss of a Spouse — When you go from a two-income home to a one income home, it can be difficult to make ends meet. In addition, a divorce can be very costly in terms of attorney fees and court costs. The loss of a spouse can also create substantial debt, especially when the couple did not have sufficient live insurance. In either case, a very sad event can leave a spouse in need of help from the bankruptcy court.


Business Failure — Many small business owners put everything they have into their business. Unfortunately, they also put their personal income into the business when the business is struggling. In some cases, the business owner can recover but not in all cases. When a business fails, it is often a one-two punch for the owner. The owner has lost his source of income, and he is often personally liable for the business debts. The only option may be a business and a personal bankruptcy filing.


Credit Card Debt and Poor Money Management Skills — There is a certain percentage of debtors who file bankruptcy because they are in over their heads with credit card debt. It is easy to get into credit card debt that you cannot handle. Credit card companies make it very difficult to get out of debt by raising interest rates, charging late fees, and assessing other fees that make it impossible to pay off this debt. Filing a bankruptcy can give a person the fresh start they need to begin again. It also provides debtor education as part of the process to give the person the skills and knowledge they need to manage money and credit wisely in the future.


Do You Need a Fresh Start?


If you are struggling with debt, we want to help. Our bankruptcy attorney has the experience and training to help you find an affordable and effective way to get rid of your debt problems.


Call New York bankruptcy attorney William Waldner for a free consultation to discuss your legal options for resolving financial problems. Call (212) 244-2882 or use our online contact form to schedule an appointment in our Midtown Manhattan office.