Bankruptcy is a legal option available to those who are overcome by debts. The most common types of personal bankruptcies are Chapter 7 and Chapter 13.
Chapter 7 is also referred to as “total” bankruptcy. In most cases, debtors are able to discharge all of their unsecured debts in a short time. Chapter 13, or a “working” bankruptcy, allows the debtor to restructure their debts with a suitable repayment plan that they can afford.
The vast majority of people who file for bankruptcy get into that position through no real fault of their own. Here are two common causes:
1. Adjustable mortgages
There are several different types of mortgages, with some of them being on a fixed rate and others adjustable. Adjustable mortgages have the potential to cause financial problems because the monthly rates can be adjusted alongside rising interest rates. When this happens, monthly payments can rise above the means of the homeowner. There are also occasions when a lender will approve mortgages that are unrealistic for the buyer to pay back.
2. Medical expenses
Medical treatments do not come cheap, especially for those without the required insurance coverage for the treatment they need. When left with a choice of taking out loans and getting into debt, or not having the treatment at all, it’s when individuals opt for the former and land themselves in debt. Some research suggests that over 500 thousand bankruptcy filings per year stem from medical expenses.
Dealing with mounting debt can be challenging, but it’s important to take proactive steps. Seeking legal guidance will give you further insight into the best options in your circumstances.