NO matter how the economy does, there are always reasons for people to file bankruptcy. During the period of 2008-2012, more than 1.5 million people filed bankruptcy year after year. This was during the height of the foreclosure crisis. Millions of homeowners were struggling with unaffordable mortgage payments, unemployment and failing businesses. As much as they did not want to file bankruptcy, they had to in order to protect their incomes, families and their homes.
Fast forward to 2019. The unemployment rate is currently low according to experts. There have been a lot of talks recently about a coming recession in the next 2 years. Consumer debt is at all-time high again and has surpassed pre-2008 levels. Clients are asking me: I am concerned about the national economy. If things take a turn for the worse, how will that affect me? My answer: Forget about the national economy. How’s your PERSONAL economy? If you are managing your finances well and not spending more than you earn, your chances of surviving any changes in the national economy will be better than most people. In other words, the basic rules of money management remain the same no matter how the national economy does.
What usually causes bankruptcy filings? Here are a few that I’ve seen in my work as a bankruptcy attorney for the last 22 years:
High interest loans: Recently, I have seen a lot of people going crazy with payday loans. These loans have exorbitant interest rates, which are then extended by way of additional borrowing. It’s a vicious cycle that is hard to get out of once you are in it. But it is no different from having credit cards that you keep charging on when you clearly don’t have the means to pay it all back. Some people think that as long as they can make the minimum payments, they will be fine. They don’t stop and think how excessive credit card indebtedness can keep them trapped for yeas, sometimes a lifetime.
Auto repossessions: Fast-talking car salesmen seem to have a way of getting you finance regardless of your credit or having insufficient income. This comes with a huge price tag, of course, because the lower your credit score is, the higher interest rate the lender gets to charge you. Sometimes, people will also co-sign for a family member or friend just to help them out. And then when the person ends up not paying for the car, it gets repossessed and the poor co-signor (who only wanted to do a good deed) ends up with the bill. If they can’t pay the huge deficiency after the car is sold, sometimes they end up filing bankruptcy. Think twice before buying any car, whether for yourself or for someone else. Remember that you will be paying for 36-60 months and the bank doesn’t care whether or not you lose your job. If you sign on the dotted line, you are legally responsible.
Foreclosure: Although the number of foreclosures has gone down in the last few years, there will always be people who will end up facing foreclosure for one reason or another, unfortunately. Common reasons are a job loss, disability or again, excessive debt. When your income is stretched out too thin because you are paying a mortgage, huge credit card debts, etc. and making sure that you can still pay for your normal monthly living expenses, you will become very vulnerable to any fluctuations in income since you are barely surviving. Most people are only one paycheck away from bankruptcy especially if they have zero savings.
Another situation I frequently see is where people keep refinancing their mortgage every time they accumulate a good amount of equity in order to pay off their debts. Once the credit cards are paid off, it doesn’t take very long before they are used again and then maxed out over just a few years, sometimes with balances even higher than they were before the refinance. And of course, with each refinance, the mortgage amount keeps growing, along with the monthly mortgage payment. Stop looking at your home as an ATM machine and make sure that the purpose of any refinancing that you do helps you better your overall financial condition, not make it worse.
Lawsuits, Judgments and Wage Garnishments: Some people have no choice but to file bankruptcy right away in order to stop aggressive creditor collection action. I don’t know why but I see a lot of people who wait until they have one of the above before doing anything about their financial problems. You will be better off planning ahead of time as you may have better options besides bankruptcy if you can no longer pay your debts. But if you wait until you have been sued, received a judgment, or having your wages garnished, you may find yourself with very limited options.
For the last 20 years, I’ve been helping people and business owners get out of debt. If you are in debt and have no clue what you should do next in order to change your situation for the better, I offer a free consultation. Call my office at 866-477-7772 for more information. I have offices in Glendale, Cerritos and Valencia.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped thousands of clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1 (866) 477-7772.