For some people, such as business owners, filing for bankruptcy only occurs after careful planning. For others, the decision to file bankruptcy is a reaction to a specific financial issue.
Some people, recognizing the gradual progression of their debt, may realize that filing for bankruptcy in the near future is the only likely solution. Others will feel like they have no choice but to file.
What are three of the more common scenarios that lead an individual to file for bankruptcy as a way of protecting themselves?
When a creditor files a lawsuit
A hospital that wants repayment for your recent treatments or a credit card provider that is gone a few months without a payment may serve you with notice of a pending lawsuit. If they take you to court, they can potentially garnish your wages or ask for a lien against your property, such as real estate or a bank account.
Filing for bankruptcy before your scheduled date in court will result in the dismissal of those lawsuits as part of your automatic stay and the possible inclusion of those debts in the bankruptcy.
When their lender sends them foreclosure notice
Many people will agree that they can bounce back from any hardship as long as they still have a safe place to live and a job. Unfortunately, falling behind financially might put your home at risk.
Your mortgage lender can seek to foreclose on your home and force you out of it if you fall too far behind on your payments. Filing for personal bankruptcy will not only temporarily halt foreclosure proceedings but will also give you an opportunity to renegotiate your mortgage. Chapter 13 bankruptcy, in particular, can be useful for those who need different terms on a loan.
When other collateral property is at risk
A mortgage is only one kind of secured loan. Other big purchases, like vehicles, can also involve secured financing. When someone falls behind, the lender may repossess the collateral property.
In the case of vehicles, the driver may not even receive a warning before the lender loads their finance vehicle onto a tow truck and drives it away, leaving them without transportation. If you have reached a point where you are no longer in compliance with your loans, filing for bankruptcy before the lender reclaims the collateral property can help you protect yourself against those aggressive collection efforts.
Learning why other people file for bankruptcy can help you decide if it is time for you to file.