Why do clients end up in my office every day? Today, a client told me it started innocently with a t-shirt. He was in college and offered a credit card with a $200 limit. How much trouble could he get into with that small of a limit? Well, about twenty years later, that credit card debt grew and grew and snowballed into a lot more.
Common Reasons for Bankruptcy
Here are some common reasons clients end up in my office:
Credit Cards. Like my client today, it can start out small and the next thing you know it can double out of control if you missed a payment or only pay the minimum payment. The late charges and interest continue to grow into an amount you can no longer manage month to month. Credit cards statements show you how long it will take to pay off the debt by only paying the minimum and it can be YEARS.
These type of loans charge an incredibly high interest rate which then captures you in an endless cycle of renewing and only paying interest. By only paying the interest, you never pay the debt off and it doesn’t go away.
Buying more car or house than you can afford
Many clients purchase a house and car without thinking about maintenance and insurance costs. They only look at the monthly payment and think they can afford. The extra costs must be considered or you may end up falling behind on the payments. Chapter 13 can usually help clients get back on track with these types of debts but insurance and maintenance is still needed for both. Remember, just because you are approved for “X” amount by the bank doesn’t mean you can really afford it.
When we are in college, student loans are made readily available to complete our education. You must only get the amount NEEDED as this debt will have to be repaid. Typically, the payments become due six months after graduation. Make sure your career path will lead to a job that will give you the ability to make the required payment. If you fall in default on the student loans, there can be consequences that may include an offset of any tax refunds or a levy on your wages.
No savings for emergencies
Most clients I see have no “rainy day” funds. It is important to have at least a small amount in savings for life’s emergencies. Without any savings, it can lead to taking out high risk loans such as payday loans that put you in a never ending cycle.
Lack of medical or car insurance
I see many clients who have incurred lots of debt due to lack of insurance whether it’s car or medical insurance. The State of Alabama requires proof of liability insurance; however, many drivers drive without it. If you owe money on your car, you need full coverage insurance in the event the vehicle is totaled. If totaled, the insurance company will pay off the lienholder for you. Many clients know this but still drive without full coverage which leads to a deficiency on the vehicle. Many creditors will pursue via lawsuit to collect the deficiency which brings them to my office. The same can be said when a medical emergency happens and there is no medical insurance.
Ignoring collection calls or letters
Many clients come to my office after they have been harassed by collection calls or letters. Many times, the collection firms will file a lawsuit against a client in order to collect. Do not ignore either. If you dispute, you must do so in writing so the collection agency can investigate and cease collection if you prove the debt is not owed.
Are you in one of these situations? If so, don’t suffer any longer. Please call one of our Bond and Botes offices today for a free consultation to see if we can help you!
Gail Hughes Donaldson is a Managing Partner of the Bond & Botes Law Offices in Montgomery and Opelika, Alabama. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Thomas Goode Jones School of Law. She’s been helping families work through the bankruptcy process since she started with Bond & Botes back in 1993 as a paralegal. Read her full bio here.