Los Angeles Bankruptcy Blog

In my years of practicing only bankruptcy law, I have helped hundreds of people get a fresh start. The following not scientific or a study, but just my observations based on my own personal experiences why people file bankruptcy.

So, in no particular order:

1. Divorce: going from two incomes to one can cause people to have a tougher time getting by. Also, bankruptcy is effective at tying up the loose ends — and shared debts — in a divorce for a fresh start.

2. Job Loss: whether unemployed now or a couple of years ago, people use credit cards as temporary loans to get by and pay back once reestablished and back on their feet. Unfortunately, once the income stream starts again, the disappointing surprise is that the minimum payments are not affordable. And even if they are, it’s enough only to maintain the debt, not reduce it or eliminate it.

3. Identity Theft: not just by a stranger, but I’ve seen relatives who “borrow” someone’s identity by using their credit without permission.

4. Medical Debt: Sometimes medical and health-related debt can come up suddenly. Maybe insurance will cover some of it, most of it, or none of the medical expenses or hospital stay. A bankruptcy can eliminate the tens of thousands of dollars of medical debt.

5. Budgeting Problems: You have $3,000 coming into your bank account each month after taxes, but you spend $3,500 for all of your living expenses. That extra $500 each month is coming from somewhere, and you are simply delaying the inevitable by continuing to use the credit cards.

6. Reorganizing Debt: Making minimum payments is only paying just the interest on the loans. Chapter 13 bankruptcy is more effective than debt management companies, and gives people a chance to get out of debt by making a manageable payment they can afford.

7. Lawsuits (”I got a summons”): Old credit card debt can lead to a lawsuit. This can prompt action to finally file bankruptcy and lead you to deal with the issue, once and for all.

8. Foreclosure: Filing bankruptcy can stop the foreclosure and let you either save your home or walk away with dignity (and possibly a better credit report than a foreclosure if you ever want to get another home).

9. Wage garnishment: The law suit turned into a judgment and now you want to stop the wage garnishment as they threaten to garnish your paycheck.

10. Saving for Rainy Day: Very few people seem to save for the proverbial rainy day. The credit cards are there, and relied upon to get you through. Instead, take 10% (or even 5%) of every pay check and put it aside in a separate account and don’t touch it. Make it automated.

I punched this list out in 15 minutes. I could probably come up with another five or ten if I wanted.

Which category are you in? What’s missing?