Why Do People File for Bankruptcy?

Copyright (c) 2010 Suzy Vanstrusen

You have contacted one of the three credit report agencies to get your credit records. As soon as you opened your credit file, you were taken aback, then you felt troubled. You have seen a lot of outstanding balances that need to be paid off as soon as possible. And, sad to say, your debts will prove very difficult to settle since the payments on interest have all ballooned out.

Add to your woes, you have just been laid off from your company. So how can you now juggle all your debt payments and bills every month?

Most of us encounter a similar problem. Recession has inflicted great damage to our financial stability. We found it difficult to retire all our debts. This problem may push us to finally decide on filing for bankruptcy. After all, bankruptcy can wipe off some and even all of our debts. And for sure having been discharged from bankruptcy, we can have a fresh start for us to slowly work on rebuilding our credit reports.

Now, aside from getting retrenched, what other reasons push people to take the course to bankruptcy? We will give you the four main reasons why people choose to file for bankruptcy.

Reasons Why People File for Bankruptcy

1. A recent, bad divorce. Divorce proceedings are not only time-consuming but also very expensive. People who underwent divorce settlements usually find themselves struggling to regain their financial stability. The reason is because a divorcee will need to pay a lot of charges. He or she must pay alimony charges, provide child support, and also settle the bills from his or her lawyers. And if a divorcee does not have a stable job, of course he or she will find it hard to keep up with his or her obligations. So, this is the main reason why divorcees commonly file for bankruptcy. They want to gain relief from all the worries and stress brought about by their financial difficulties.

2. Stop the Foreclosure on your house. A Chapter 13 Bankruptcy filed before the sheriff's sale can save your house from foreclosure. This is why most people would rather have bankruptcy in their credit reports rather than lose their homes to foreclosure. Still, this arrangement can only work if the person who filed for bankruptcy can keep up with the repayment plan. Such plan gives specific details on how the person can pay all his mortgage arrears over a period of five years.

3. Provide Assistance in Repaying Student Loans. Though a student loan can never be discharged, taking the bankruptcy option can provide an opportunity for debt consolidation. This program will help you merge all your student loans and submit just one payment each month. And you won't need to worry about your monthly payments. This is because the repayment plan will be based solely on your financial capability.

4. Challenge Fraudulent Claims of Creditors. Some lenders may try to collect more than what you owe them. They can easily impose high interest rates and fees since they can manipulate your credit accounts. Even if your credit file from the three credit report bureaus can prove them wrong, they will still insist that you pay the amount they have specified. You can free yourself from these unscrupulous lenders simply by filing for bankruptcy.

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