It never fails when people find out that I am a bankruptcy attorney at Halcomb Singler, LLP. They ask, “but how do people get into a position that they need to file bankruptcy?” There will likely be about 10,000 Chapter 7 bankruptcy cased filed in the Indianapolis Division of the Southern District of Indiana Bankruptcy Court this year. So, if you aren’t a person who has ever thought about bankruptcy, there are a lot of people struggling financially. If you are a person who has contemplated filing bankruptcy or has filed bankruptcy, you are certainly not alone. Of course, the overall reason that people need to file bankruptcy is that they have financial shortfalls that lead them to get behind on bill and/or financial obligations, but the purpose of this blog is to point out a few very specific issues that tend to push people into bankruptcy.
First and foremost the reason that people file bankruptcy is garnishment. In Indiana, if a judgment is entered against you then often the next step for a credit card company, medical provider or other judgment creditor is to garnish your wages. Typically 25% of a person’s net (take home) wages can be garnished by the Court to satisfy a judgment. Since the filing of a Chapter 7 or Chapter 13 bankruptcy will stop a garnishment, many people turn to bankruptcy because they aren’t able to provide for their basic needs without 25% of their net income.
Secondly, many people file bankruptcy because they have fallen behind on their mortgage obligation. It is important to note that most creditors won’t “work with” a person who owes money until they are about 3 months behind on payments. In the case of a mortgage, most mortgage companies will no longer accept monthly payments when a person has fallen 3 months or more behind. Instead, they demand that the homeowner pay the entire amount owed to reinstate the mortgage. Do you see the problem here? As a result, some people end up 6 months, a year or even further behind on their mortgage due to a short-term problem. Now they could pay the mortgage back current over time, but the mortgage company will only take a full payment of everything owed. So, people file Chapter 13 bankruptcy to force their mortgage company to accept partial payments over a period of time to catch up on their mortgage.
The third reason is a major unexpected expense. I’m not talking about a car that needed to be repaired. If you have read my blogs before you know that I don’t consider a car repair to be an unexpected expense anyway. I am talking about a heart attack for the 1 week a person didn’t have insurance, a person being injured by a drunk driver, they discover severe mold in their home and aren’t able to live there anymore, etc. These types of personal disasters are enough to take most people down financially. A lot of these people had emergency funds that were funded for 6-months, but had to spend it all to try to weather their “life storm.”
The fourth reason is a little bit of overspending for a long period of time followed by a job loss. In this scenario a couple usually makes good money. Both have jobs and they feel secure in the jobs. They have 2 car payments and a mortgage payment. They have 2 children who are involved in traveling sports and clubs at school. They have overspent a little bit each month over the last 10 years. Most of this overspending was for the benefit of their children. They have accumulated about $25,000.00 in credit card debt. They were able to pay the credit card bills when both of them were working, and would use extra money to make bigger payments when they could. They always paid their credit cards, as well as their other bills, on time. However, when one of them lost their job and it took 3 months to find a new job the late fees and interest rates on the credit cards made payment impossible.
The fifth reason that people often have to file bankruptcy is that they had a business that went out of business. Most creditors and banks will not loan money to a business unless the owners of the business personally guarantee the debt. As a result, when a business closes down there is often a lot of debt that follows the owner(s). Filing bankruptcy can allow the business owner to get a financial fresh start so that he or she can move on with life in a new chapter.
Last, but not least, for common reasons that people file bankruptcy is divorce. In this situation you may have agreed to keep a lot of the debt that was incurred during the marriage and then weren’t able to pay it. Or, perhaps your ex-spouse was supposed to pay the majority of the joint marital debt and hold you harmless, but he or she stopped making the debt payments. Either way, going from one household to two households on the same amount of money is also financially taxing. During the process of divorce it is not uncommon for both spouses to file a joint bankruptcy or for one or both of them to file bankruptcy during or shortly after the divorce proceeding.
If you are having similar financial issues to one of the examples or you are, for any reason, contemplating bankruptcy, call Halcomb Singler at (317) 575-8222. We help people who live in Central Indiana including Indianapolis, Zionsville, Westfield, Carmel, Fishers and Noblesville solve their debt problems through debt settlement or bankruptcy. There is a free initial consultation for those who are contemplating bankruptcy. Call today for your appointment at our Carmel, Indiana office.