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10 Situations Where Filing for Bankruptcy May Be the Best Option

1. Poor Credit Score

It sounds counterintuitive, but you can improve your credit score by filing for bankruptcy if you're already below 600. Many people contend with debt so long that their credit is already bruised and battered by the time they consider this option. Data shows that once filers' cases are discharged, usually within six months, their scores improve to an average above 620. And with time, this number can continue to steadily climb.While Chapter 7 and 13 bankruptcy filings will stay on your credit for 10 and seven years respectively, this is usually less detrimental than having several delinquent and/or collections accounts sit stagnant for years. Both of these can have a grave impact on credit, especially if you're unable to pay them in full. Bankruptcy, on the other hand, often provides an immediate boost to your score and allows you to continue building for the future.

2. No Access to Credit

This point ties into the previous. When your credit score is already low, you cannot access the money you need for a car loan or mortgage. It may be difficult to obtain credit immediately after bankruptcy, but studies confirm those who complete the process are more likely to receive new credit lines within 18 months than those who fall behind with payments and do not file.Although you will likely have low limits at first, using credit cards and loans responsibly will help to further increase your score. This is a much better way to meet your financial goals versus letting unpaid debts sit on your credit report and wreak havoc.

3. Seriously Overdue Debts

Once people fall severely behind on debts, and their financial troubles tend to mount. Many soon find themselves with court judgments and balances in collections. The problem is that once this cycle begins, it's difficult to pull ahead without help. Wage and bank account garnishments may quickly ensue, leaving little to no money to pay your rent, mortgage, or other crucial bills.Filing for bankruptcy helps reverse this situation by granting an automatic stay on collections efforts. This effectively ends lawsuits and garnishments to restore the money you need to live. Once the bankruptcy is discharged, depending on how you filed, you'll have either a clean slate to start over or an affordable monthly payment plan free of harassing creditor calls.

4. Job Loss in Johnson County, Kansas

A job loss means more than a change to your daily routine; it also brings an abrupt change to your finances. Some people receive a severance that temporarily eases the burden while others are less fortunate. To compound matters, a 2019 poll shows roughly 30% of Americans lack a savings account that can help them weather unexpected crises. 
Likewise, those unable to quickly find another position may not be able to adjust their household budgets in time to satisfy creditors. Bankruptcy can provide a fresh start and close the gap between your former and current financial situations.

5. Ongoing Medical Bills

A study from the American Journal of Public Health found that nearly 67% of U.S. bankruptcies are the result of medical issues. Even when patients have health insurance, the copays, high deductibles, and lost time at work take their toll. This creates the perfect storm in which people cannot pay the hospital and doctor bills that continue to mount. Bankruptcy stops the stress and provides shelter so a person can fully recover their physical and financial health.

6. Previous Overspending

When offers for loans and credit cards stream your way, it can be hard to turn them down. But a catastrophe is likely to occur when these payments are paired with those for your car, house, and other debts. You're likely to soon find yourself unable to pay even the minimum amount due on each account. 
Some try to correct this revolving door with a debt consolidation plan, but statistics show most of these plans quickly fail because they impose unrealistic terms. Others take out home equity loans and use that money to pay unsecured debts. Once exhausted, however, many borrowers find themselves back in debt. Bankruptcy eliminates the need to continue borrowing money and provides a structured way to finally resolve unpaid accounts.

7. Divorce or Separation

Not only is the end of a relationship emotionally taxing but it also places intense financial strain on both partners. First are the legal fees, which can rise astronomically in cases where marital assets must be divided, child support determined, and alimony calculated. Then come the costs of maintaining two separate households as opposed to one. Finally, somebody has to pay the debts incurred during the marriage. 

Some people file bankruptcy because of the legal fees alone, while others must do so following a wage garnishment to pay child support or alimony. The point is that a divorce can be financially devastating for a variety of reasons, and bankruptcy is sometimes the only way to see yourself clear.

8. Unforeseen Expenses

Natural disasters like tornadoes, floods, and earthquakes destroy property and belongings and can force people into bankruptcy. Theft can be equally damaging, especially if an insurance policy isn't in place or doesn't provide for such circumstances. Homeowners are often unaware of the many different coverage options they need to buy until it's too late.

When property is lost, it's not just the home or dwelling that must be replaced. It's all the personal belongings as well, and in the meantime, immediate food and shelter must also be found. This expense alone can quickly drain a contingency fund and litter a path to recovery with obstacles.