Most Common Reasons For Filing Bankruptcy

One of the most debilitating things someone can go through is filing for bankruptcy. No one thinks this possible could happen to them until reality sets in and bankruptcy is the last resort. This usually happens when someone is unable to keep up with their financial obligations such as car loans or credit card payments. Not only is it rough on the debtor (or the person who owes the money) but it is hard on the creditor as well (the person, business or municipality to which the money is owed).

While it is usually the debtor who files for bankruptcy, there are the rare occasions when the creditor might do so. This is called involuntary bankruptcy and generally occurs when the creditor is owed a very large sum of money. Creditors have little comfort when trying to collect debts, and therefore are somewhat relieved when someone files for bankruptcy because, no matter how long it might take, they will get their money back.

When someone files for Chapter 7 bankruptcy, their assets are combined and then doled out to the creditors. This form of "instant gratification" is most favored by creditors since they get their money up front. However, when the debtor files for Chapter 13, the creditors are receiving money on a fixed payment schedule. It may take longer to collect what is owed, but they will get the money. In these cases, bankruptcy creditors are almost like loan sharks; they are always trying to get their money. On the other hand, bankruptcy is frowned down upon by creditors because they are afraid they will never get paid.

The Chapter 7 bankruptcy process is the easiest of all such processes. It's often referred to as straight bankruptcy. Chapter 7 is a total liquidation process. The debtor will turn over all non-exempt property to the trustee who then will convert it to cash for distribution to the creditors. The debtor will receive a discharge on all debts usually within 4 months. In the vast majority of these cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively new fresh start at life again.

The following reasons are the most common for filing bankruptcy:

· Unemployment
· Large medical expenses
· Seriously overextended credit
· Marital problems

A recent academic study reported that medical bills caused half of bankruptcies in the United States.

Chapter 7 will erase all but the following debts for a person proceeding through this process:

· Child support and alimony
· Personal injury
· Student Loans
· Income tax debt.

There has been much recent controversy surrounding the new bankruptcy laws, and especially the means test. The simple truth is that there are more requirements under the new laws and the unfortunate result of some people required filing chapter 13 instead of Chapter 7. However, for the vast majority of filers Chapter 7 is still be available with actually little extra effort. A qualified and experienced bankruptcy attorney will be able to assist a person through the Chapter 7 filing process and all the other tests and requirements in the new bankruptcy law.