According to a recent survey, the top three reasons that people in Arizona and other states file for bankruptcy are credit card debt, having their home foreclosed upon and losing a job. However, credit card debt is by far the main reason that people file, with more than a third of respondents citing this type of debt as their reason for filing.
The reason that credit card debt so often leads to bankruptcy is in large part attributable to the fees and interest rates associated with it. Someone with a manageable amount of debt can see what they owe double between late fees, overdraft charges and annual user fees, not to mention a balance that continues to grow even without additional charges due to double-digit interest rates.
The frequency of credit card debt as a catalyst for bankruptcy is possibly one of the reasons that nearly two-thirds of individual consumers who file for bankruptcy do so under Chapter 7. This form of bankruptcy discharges most unsecured debt and does not require a repayment plan the way that Chapter 13 does. Another benefit of Chapter 7 is that it tends to cost less and can be finished within five to six months.
While it is common for people to be concerned about filing for bankruptcy and how it will impact their credit rating and finances, filing can enable them to improve their credit rating in a shorter period of time than if they continued to struggle with unmanageable debt. An attorney with experience in bankruptcy law may be able to help a client determine what forms of debt relief are available and appropriate.
Source: Main St, “This Kind of Debt Can Lead to Bankruptcy”, Juliette Fairley , December 12, 2013