Over 1.5 million people, on average, file for bankruptcy in a given year, according to U.S. Bankruptcy Court statistics. In 2014, for example, 3% of these were business-oriented bankruptcies and 97% were personal.
Given that less than one-in-four people in the United States have six-months worth of savings to cover the cost of living in the event of an emergency, these statistics are not surprising. It’s estimated that 27% of Americans don’t have any savings. Furthermore, approximately 75% of Americans live pay-check-to-pay-check.
Potential Reasons to File Personal Bankruptcy
When should someone seek the counsel of lawyers to determine if they need to file for bankruptcy? There are several situations in which a bankruptcy attorney’s counsel may be advised.
Medical expenses, according to a recent Harvard University study, are responsible for around 62% of these bankruptcies. Student loans, however, are responsible for a minimum of 1%; this amounts to approximately 15,000 bankruptcies filed per year.
Another reason someone may choose to seek lawyers that handle bankruptcy is due to excessive credit card debt. The typical American household has 13 credit cards. As a result of this situation, and depending upon cash flow and annual income, it may prove difficult to make full or even partial payments. In general, credit card purchases cost 112% more than if cash were being used to pay for products or services.
Repayment Plans with Chapter 7 and 13 Bankruptcy Cases
In order to determine which type of bankruptcy to file, lawyers with this expertise are recommended. With a Chapter 7 bankruptcy case, a repayment plan isn’t required, according to the United States Courts; it is, however, required with a Chapter 13 case. In a Chapter 7 case, a bankruptcy trustee is appointed to sell the debtor’s non-exempt assets. Once these assets have been sold, they are used to pay off creditors.
It is possible that a Chapter 7 case may be dismissed. According to the United States Courts, this may occur in the case of consumer debts. If these debts are business-oriented, then this is unlikely to occur.
Chapter 7 Bankruptcy Case Options and Filing a Chapter 11 Petition
According to United States Courts, there are other available options to filing Chapter 7. For individuals in business, which includes corporations, partnerships, and sole proprietorships, debtors could file a Chapter 11 petition instead. Basically, this might be the case where debtors want to continue operating their business and not be required liquidate their business assets in order to pay off their debts.
With a Chapter 11 petition, it is possible, under some circumstances, to have the debt reduced. Other potential scenarios include payment extensions, a reorganization or consolidation of debts.
Chapter 13 and Individual Debts
With Chapter 13, an individual with a consistent income may be able to adjust their debts. One of the advantages of this, according to United States Courts, is that these individuals may be able to avoid foreclosure of their homes. In this case, they may be offered a payment plan to address past-due payments.
Bankruptcy Filing Fees
Filing fees are required when you file for bankruptcy. Chapter 7 cases cost $335 to file, and Chapter 13 cases cost $310.
When someone needs to file for bankruptcy, it’s important to listen carefully to their lawyer’s advice. In this way, they are better prepared to avoid recreating this situation in the future.