According to bankruptcy statistics supplied by the United States Bankruptcy Court for the Eastern District of Pennsylvania, there have already been more than 3,000 bankruptcy filings this year – and, if 2017 is anything like 2016, approximately 6,000 additional people will file before the year is through. There are many different reasons why people declare bankruptcy in Pennsylvania, but some are more prevalent than others. In this article, our Philadelphia bankruptcy lawyers will describe the five most common reasons why people file for bankruptcy protection in Pennsylvania.
What is #1 Most Common Cause of Bankruptcy in PA?
We know you’re curious, so let’s skip straight to the (arguably) number one reason people file for bankruptcy in Pennsylvania: medical bills.
If you’ve thought about filing for bankruptcy for medical debt, you aren’t alone. On the contrary, several studies and surveys have suggested medical debt is the leading driver behind bankruptcies throughout the United States. For example:
- According to a 2009 study by Harvard researchers published in The American Journal of Medicine, “62.1% of all bankruptcies have a medical cause.” More specifically, “Unaffordable medical bills and income shortfalls due to illness were common; 57.1% of the entire sample (92% of the medically bankrupt) had high medical bills… 5.7% of homeowners had mortgaged their homes to pay medical bills; 40.3% of the entire sample had lost income due to illness; [and] 95% of the lost-income debtors also had high medical bills.” This study was based on a sample of 2,314 people who declared bankruptcy in 2007.
- An analysis published by NerdWallet in March 2014 claimed that “three in five bankruptcies in 2014 will be due to medical bills,” a figure which equates to approximately 619,342 bankruptcies based on the 1,032,236 total bankruptcies filed the year prior.
On the other hand, the precision of these studies has been questioned by fact-checking organizations such as Snopes, which rates the claim that medical bills are the leading cause of bankruptcy as a “mixture” of true and false. Snopes pointed to a New York Times article, which noted, “Research on medical bankruptcies has been controversial because it can be hard to untangle how medical bills fit into a family’s overall pattern of financial troubles.” (For example, according to the Times, “29% of the people with medical bill problems said a family member had been forced to stop working or cut back on hours.”)
Analysts have arrived at mixed conclusions about the extent to which the Affordable Care Act (ACA), or Obamacare, has or hasn’t impacted bankruptcies. According to a March 2017 article published in Lancaster Online, “In Pennsylvania, 1.1 million residents now have the financial security of health insurance coverage. Prior to the law, health care costs were the number one cause of personal bankruptcy.” On the other hand, an October 2012 article published in The Hill pointed out that “according to researchers at the Fraser Institute, a nonpartisan Canadian think tank, bankruptcy rates are statistically the same” in the U.S. and Canada, which has a single-payer healthcare system. And, with the fate of the ACA uncertain, it’s currently impossible to estimate the number of bankruptcies that will be filed due to medical costs during the next several years.
However, setting aside the political dimensions of healthcare, one fact is certain: if a person is medically uninsured or underinsured, they may be facing an overwhelming amount of medical bills resulting from an illness or accident. The bills may be even more difficult to pay because of loss of work and income due to the illness, leading to as many as hundreds of thousands of bankruptcy cases in the U.S. each year.
4 More Common Reasons People File for Bankruptcy in PA
While the exact degree to which medical debt drives bankruptcy is a hotly debated issue, it’s clear that medical bills are a major cause – arguably, the leading cause – of bankruptcy in Pennsylvania and beyond. However, medical bills are certainly not the only source of debt and financial hardship.
File for Bankruptcy to Avoid Foreclosure
If you are behind on your mortgage payments, it is likely that in the near future you will be facing foreclosure and the loss of your home. However, you may be able to file for bankruptcy to avoid foreclosure. By virtue of the automatic stay in bankruptcy, the foreclosure proceeding is stayed and a repayment plan including mortgage arrears and other debts is established. The payment plan is generally determined by affordability and the amount of debt owed at the time of filing.
File for Bankruptcy to Prevent Repossession of Your Vehicle
If your car is in danger of repossession, a bankruptcy will enable the borrower to stop the repossession and keep the vehicle. Further, a petitioner in bankruptcy may stretch the car payments out over the course of the plan, which may result in a lower, more affordable automobile payment.
File for Bankruptcy Due to Unemployment
Due to the current economic downturn, many have lost their jobs or seen their hours reduced. The reduction in income makes it very difficult to keep up with monthly expenses, and for many people, the result is that significant debt is gradually incurred. Although a period of unemployment may be a very difficult time, it may also be an opportune time to file bankruptcy and eliminate or reduce outstanding debts.
File for Bankruptcy Due to Increased Expenses
It is not uncommon to see our expenses increase from year to year, especially as families grow – yet wages don’t always keep up. Recently, credit card interest rates have dramatically increased as well. Such an increase in expenses is especially troublesome on those with a fixed income or hourly pay.
Philadelphia Bankruptcy Lawyers for Chapter 7 and Chapter 13
While these are some of the most common reasons people file for bankruptcy with the Philadelphia bankruptcy attorneys at Sadek & Cooper Law Offices, they don’t cover every possible situation. If you are considering bankruptcy for any reason, discuss your legal options with our Philadelphia Chapter 7 bankruptcy lawyers or Delaware County Chapter 13 bankruptcy attorneys first.
Our law firm serves Southeastern Pennsylvania, including Bucks County, Delaware County, Montgomery County, and the Philadelphia region. To set up a free legal consultation about declaring bankruptcy in Pennsylvania, call Sadek & Cooper Law Offices at (215) 995-2543 today.