Why do people file for personal bankruptcy?

Debt is not an uncommon problem for people across the United States. Collectively, Americans hold $1.5 trillion in student loan debt alone. The weight of this combined with other household debt and bills can be overwhelming for some Connecticut families. In some cases, personal bankruptcy may be the best option. 

Medical debt is one of the more common reasons people choose to file for bankruptcy, as it can involve very overwhelming bills within a short period of time. Combined with student loan debt, this can push someone past what they are able to pay. Another common reason is the loss of a job or the inability to find work. A combination of two of these factors or all three may make bankruptcy a necessary step.

There are multiple types of personal bankruptcy available depending on a person’s situation. Chapter 7 bankruptcy is the most common form, in which people liquidate non-exempt assets to pay down creditors. Another option for individuals is Chapter 13 bankruptcy, wherein individuals restructure their debt in order to pay off creditors over time. This type of bankruptcy does not require assets to be liquidated.

The type of personal bankruptcy a person is able to file for depends largely on his or her income and whether debt restructuring will create the ability to pay off debt within a plan. While bankruptcy may seem like an overly “extreme” option, those who wait to file when they are truly in a financial bind may find themselves in a more difficult situation. Connecticut individuals who are considering bankruptcy should speak to a lawyer about their options.