Bankruptcy is often thought of as a last resort for those who are struggling with overwhelming debt and financial difficulties. But what are the top 10 reasons why people file for bankruptcy in Seattle Washington? In this article, we’ll explore the most common reasons why people turn to bankruptcy to help them get a fresh start financially. You can also listen to the conversation attorney Richard Symmes had on 1150am KKNW discussing the top 10 reasons why people file bankruptcy in Seattle here:
There are 2 types of bankruptcy cases that most consumers file and those are chapter 7 bankruptcy for a complete elimination of debt wherein the bankruptcy process can be completed in a little over 90 days and chapter 13 bankruptcy where debtors are on a repayment plan for 3-5 years and plans may need to have debts paid in full or perhaps a fraction of the debt may be paid depending on the specific circumstances of the debtor. So, what are the top ten reasons people file for bankruptcy in Seattle, Washington?
- Job Loss or Reduced Income
One of the most common reasons why people file for bankruptcy in Seattle and throughout Washington State is due to job loss or a reduction in income. If you lose your job or experience a significant decrease in income, it can be difficult to keep up with your bills and other financial obligations. Filing for bankruptcy can help you eliminate or reduce your debt and provide you with the breathing room you need to get back on your feet. Even individuals or households who may be making a decent living, may still qualify for filing chapter 7 or chapter 13 bankruptcy. The median Income as of March 1st, 2023, for a household of 1 in Washington State is $76,962 and that number goes up the more people that are in the household. This number is important as those below the median income may qualify for chapter 7 bankruptcy or only have to be on a 3-year repayment plan instead of 5 years in a chapter 13 bankruptcy case.
- Medical Expenses
Medical bills can quickly add up, and even with health insurance, they can still be overwhelming. If you or a family member experiences a serious illness or injury, the medical bills can be astronomical. Medical debt can be unavoidable and no fault of your own, so dealing with it can be frustrating. It is even more of a concern if you did not have insurance at the time of receiving care. Filing for bankruptcy can help you eliminate or reduce your medical debt and give you the opportunity to focus on your health and recovery.
- Credit Card Debt
Credit card debt can be a slippery slope, and it’s easy to find yourself in over your head. High interest rates and late fees can quickly spiral out of control, leaving you with a mountain of debt. Credit card debt is on the rise and filing for bankruptcy can help you eliminate or reduce your credit card debt and provide you with a fresh start financially. Even for those who earn a very good income and would need to repay their debt through a chapter 13 bankruptcy, may be in a better position to file a chapter 13 bankruptcy instead of continuing to pay minimums on debt. This is because a chapter 13 bankruptcy would stop the excessively high interest rates from compounding. So, if you pay your minimums for 5 years, vs. making a chapter 13 bankruptcy payment for 5 years you may come out way ahead. In a bankruptcy situation you would be debt free in 5 years vs. continuing to make your minimum payments you may be in the same position as you were 5 years prior if nothing else has changed. In a chapter 7 situation, the debt can be eliminated entirely with no need for payments.
Divorce can be a major financial strain, especially if you have joint debt with your ex-spouse or have incurred significant legal fees in a divorce proceeding. If you’re struggling to keep up with your bills and other financial obligations after a divorce, filing for bankruptcy can help you eliminate or reduce your debt and provide you with a fresh start financially. It should be noted that any debt associated with child support are not dischargeable and there are certain debts related to a divorce that may only be discharged as part of a chapter 13 bankruptcy vs. a chapter 7 bankruptcy as long as they are non for the support or your former spouse and children.
If you’re facing foreclosure on your home, filing for bankruptcy can help you save your home from foreclosure. When you file for bankruptcy in Seattle, an automatic stay is put in place, which prevents creditors from continuing with collection efforts, including foreclosure. This gives you the opportunity to catch up on your mortgage payments and keep your home. A chapter 13 bankruptcy is typically filed to stop a foreclosure sale to propose a plan to repay arrears over 5 years or buy time to work out a loan modification or complete a sale transaction.
- Unsecured Loans
Unsecured loans, such as payday loans or personal loans, can be a quick solution to a financial emergency, but they often come with high interest rates and fees. If you’re struggling to keep up with your unsecured loans, filing for bankruptcy can help you eliminate or reduce your debt, and provide you with a fresh start financially. It is important however to make sure you don’t file a bankruptcy right after incurring a personal loan as you could draw an objection for fraud. Typically, you want to wait several months or a year before the filing of a bankruptcy while making minimum payments.
- Business Failure
If you own a small business and it fails, you may be left with a significant amount of debt. Filing for bankruptcy can help you eliminate or reduce your business debt and provide you with the opportunity to start fresh and explore other business ventures. Filing bankruptcy does not mean you will never get approved for credit again, you might have to wait a bit to qualify for new loans, but it doesn’t have to be the end of your business career. Also keep in mind that if 50% or more of your debts are from a business or considered non consumer debt then you may not have to pass the means test to be under income limits to qualify for chapter 7 bankruptcy.
- Unexpected Expenses
Unexpected expenses, such as car repairs or home repairs, can put a strain on your finances. If you’re struggling to keep up with these expenses, filing for bankruptcy can help you eliminate or reduce your debt, and provide you with the opportunity to get back on your feet. If you eliminate your monthly payments on your debt, you will then create savings to invest in other things such as a home or allow you to pay your regular living expenses moving forward.
- Student Loans
Student loans can be a major financial burden, and they’re often difficult to discharge in bankruptcy. However, filing for bankruptcy can still help you eliminate or reduce your other debts, which can free up more of your income to put towards your student loan payments. The balancing test to eliminate student loans as part of bankruptcy has become more streamlined with the United States government creating guidelines and an application to complete to weigh whether a debtor can qualify for student loan discharge. It still is not easy and still requires the filing of an adversary proceeding, which is a lawsuit within the bankruptcy case in order to successfully discharge a student loan debt.
- Tax Debt
Tax debt can be overwhelming, especially if you owe a significant amount. Filing for bankruptcy can help you eliminate or reduce your tax debt and provide you with the opportunity to get back on track financially. Of course, not all tax debt is dischargeable and IRS debt must meet certain requirements in order to be discharged, such as you must have filed your tax returns at least 2 years ago, the taxes must have not been reassessed in the last 180 days prior to filing and it must be at least 3 years since your tax debt was due in order for federal income tax to be dischargeable. As an added bonus, if you owe more in taxes than other consumer debt, you may not have to pass the bankruptcy means test to qualify for chapter 7 bankruptcy.
As you can see, there are many reasons why people file for bankruptcy in Seattle, Washington. Whether it’s due to job loss, medical expenses, credit card debt, divorce, foreclosure, unsecured loans, business failure or many other reasons. In many cases, the accumulation of debt may have been unavoidable, but the good news is that there are tools such as bankruptcy to eliminate this debt to keep it under control. If you need assistance with filing a bankruptcy throughout Washington State or have questions, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.