If a consumer sees no way of paying debt, bankruptcy in Wetumpka, Alabama, can provide some relief from certain debts. Bankruptcy doesn’t often happen because of frivolity, and there are several common reasons a consumer may file a petition for relief.
Reasons for bankruptcy
A Harvard University study showed medical debt makes up the top reason for filing, accounting for 62% of cases, and 78% had insurance. A rare illness, long-term illnesses, deductibles, and out-of-pocket expenses, and missed work can impact savings, even for the insured.
Job loss is a common reason consumers file for bankruptcy, and statistics show 3 out of 10 Americans lack emergency funds for such circumstances. An unexpected termination or lay off may cause loss of insurance benefits, and they may not be able to find employment. Even if they find temporary employment, it may not be enough to pay down debt and keep them from filing bankruptcy.
The American Journal of Public Health found about 44% of cases were filed because of excessive spending. The report showed divorce and separation made up 24% of cases, mortgages accounted for 45%, and helping family members made up around 28%.
Bankruptcy Abuse and Consumer Prevention Act
Studies show bankruptcy filings increased in the late 1990s, which caused congress to pass the BACPA. In 2005, bankruptcy filings peaked at 2 million, but they decreased to 600,000 in Many consumers, especially high-earners, racked up debts in hopes of getting them discharged in Chapter 7.
Chapter 7 is a type of bankruptcy that discharges some unsecured debts, such as credit card debt, through selling assets. Congress added the means test requirement, which determines eligibility based on income, and to encourage more Chapter 13 filings.