Bankruptcy is a financial tool that consumers can use, and there are also options for commercial bankruptcy for business owners. It allows people to eliminate overwhelming debt. If someone files for Chapter 13 bankruptcy, that debt is consolidated into a repayment plan, whereas Chapter 7 bankruptcy allows them to sell off non-exempt assets to pay back what they can to creditors before forgiving remaining debts.
Despite the usefulness of both of these options, there are those who are hesitant to use them. Often, the problem is a sense of guilt, where they blame themselves for the debt and feel like they should not use bankruptcy because that debt is their own responsibility. But is this actually true?
Reasons for bankruptcy
There are certainly some situations in which consumers create their own financial problems, such as overspending on a credit card. But in many cases, the top reasons for bankruptcy have nothing to do with the person’s decisions.
For instance, many people file for bankruptcy after job loss. That does not mean that you made a mistake. You may have had a budget that worked perfectly based on your income, but then there was an economic recession and your company had to do layoffs.
Another example is when people find themselves facing outstanding medical debt and file for bankruptcy. Consumers have no control over the cost of their own medical expenses. Even a person with health insurance could find themselves deeply in debt if their insurance simply refuses to cover the costs, denying the payout. Again, this is not the consumer’s fault.
Filing for bankruptcy
You may be considering bankruptcy for these reasons or a variety of others. If you are, just be sure you know what legal steps to take.