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A financial crisis is unpredictable; bankruptcy will be unavoidable when that crisis happens. People must learn from the past to avoid repeating the same mistakes and prepare for a more financially secure future. 

 In the end, it’s the lessons that we learned that could pull us through.

When Lehman Brothers filed for bankruptcy on September 15, 2008, it was a grim and somber moment in the financial and investment world. Being the fourth largest investment bank, this beacon of a financial institution reverberated a message so loud that it echoed through all corners of the world – that nothing last forever and that a financial crisis is hard to predict. 

In an uncertain world and a struggling economy, it’s best to know that you have the right partners to help and guide you to be free from an overwhelming debt situation. The Law Offices of Ronald E. Stadtmueller provides consultation on debt relief in San Diego, with legal services specializing in Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Bankruptcy Law, Debt Reorganization, Debt Discharge, General Bankruptcy.

As Lehman Brothers filed for Chapter 11 bankruptcy protection, it signaled to the world that even financial giants could fall victims to unpredictable financial Armageddon, so much so that individuals need to double up on their contingencies for financial management and planning. But when the inevitable happens, when creditors become unstoppable to the point of harassment, and there’s that looming threat of house foreclosure and car repossession, filing for bankruptcy might be the only way out of this financial conundrum.  

Why do people go bankrupt?

It might seem inescapable, but sometimes filing for bankruptcy can be a good thing. Credit bureaus and scoring experts often are against bankruptcy, which drives down credit scores to the very bottom. But then again, how else can you stop those harassing collection calls, wage garnishments, foreclosures, repossessions, charge-offs, lawsuits, etc., that come along with overwhelming debt?

Thousands of people file for bankruptcy daily to get that relief from a staggering debt situation and get a fresh financial start. Being bankrupt is not something without cause; sometimes, it is an offshoot of an unpreventable circumstance. The following are some of the triggers of bankruptcies. 

Medical Problems

Medical bills can easily wipe out savings accounts and retirement plans, especially if the medical problem is not covered by health insurance, which is often the case for pre-existing medical conditions, or on this occasion, a medical condition caused by the COVID-19 pandemic.

Despite government aid programs to prevent and intervene and stem the tide of bankruptcy filings, needless to say, bankruptcy is expected to increase as government aid continues to reduce.

One hit of a rare chronic or severe disease or injury can equate to hundreds of thousands of dollars in medical expenses. And it’s not just a one-time payment; it could even be a medical bill that could run for an extended time. Enough to send an individual on the brink of financial ruin. 

Job Loss

One of the common triggers of bankruptcy is a job loss or unemployment. This is pretty obvious, especially for people living from income to income. Job loss easily qualifies for a Chapter 7 bankruptcy and passes the Bankruptcy Means Test or income median test. Regardless if job loss is caused by resignation, termination, or layoff, the loss of a source of income significantly impacts the whole livelihood and lifestyle, especially if an emergency fund is non-existent.

Separation or Divorce

Separation or divorce is costly, especially when one person is burdened with the lion’s share of the expenses and debt. Legal fees are astronomical. There’s also the division of marital assets, wage garnishment for child support or alimony, and then the cost of keeping two separate households after the separation decree. The rest of the bills take a back seat and accumulate, hence, the severe financial problem. 

What does life look like after bankruptcy?

There is a lot of talk going around that life will be difficult after bankruptcy, that you would be unable to buy a new house or a car because of your credit score. Yes, there will be some great deal of difficulty when trying to get back to life after the filing process, but once you’re handed those bankruptcy discharge documents, you’ll start to see your life slowly climbing back again.  

A bankruptcy discharge refers to an issued permanent court order releasing and absolving a debtor from personal liabilities for certain debts and obligation to repay debts, and creditors are no longer permitted to run after debtors. 

While it’s true that credit scores do take a dive during the process of bankruptcy, then again, there’s always that opportunity to rebuild credit scores right back up to excellent after the issuance of a bankruptcy discharge. Yes, bankruptcy does hurt, but so does stockpile debt. 

Life after bankruptcy should be treated as a chance for that badly needed financial restart. The financial recovery process can be long and complex and may take even a couple of years before a person can get hold of that stable foothold of a credit score. 

Some of the steps to ensure that you can get there and regain control of your financial life again are to secure and maintain good employment, start building up a savings and retirement account, pay bills on time, use your credit wisely, and maintain a positive balance on your credit to begin rebuilding your credit score.  

And yes, it is very much possible to regain life back again after bankruptcy.

Takeaway

The tale of the Lehman Brothers and how such a towering financial institution crossed the line toward financial failure served as a lesson to be learned not only by corporations and other financial institutions but also by individuals and with their personal finances. Although bankruptcy may at some point be unavoidable as it is unpredictable, still, it’s what comes after is what matters most – a financially free life. 

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