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7 Reasons People File Chapter 7 Bankruptcy in Maryland

Reasons People File Bankruptcy Key Points:

  • Excessive medical bills account for 66% of bankruptcy filings.
  • Top 7 reasons people file bankruptcy are medical bills, divorce, unemployment, poor financial management, lack of financial planning, living paycheck to paycheck and civil judgments.
  • In 2020, more than 20,000 personal and business bankruptcy cases will be filed by Maryland residents.

Debt can be a slippery slope. One minute you’re making your monthly payments with ease. The next, creditors are harassing you about late payments.

At this moment, COVID-19 is taking a toll on the U.S. economy. Unemployment rates are higher than they have ever been in 70 years. Nearly 30 million people are facing home foreclosures or evictions in the coming months.

If you are stressed about your finances, you may be thinking about filing Chapter 7 bankruptcy. The reality is you are not alone. This year, nearly 20,000 people and companies will file some bankruptcy in Maryland.

What Are the Common Reasons People File Bankruptcy in Maryland?

Making the decision to file bankruptcy is hard for most people. Filing bankruptcy can cause people to feel guilty, depressed and shameful.

By the time people get to the point of considering bankruptcy, their finances are in shambles. In many instances, filing bankruptcy is their only option. Here are 7 common reasons people file bankruptcy in Maryland.

  • Medical Bills
  • Divorce
  • Lost Wages
  • Financial Mismanagement
  • Lack of Financial Planning
  • Living Paycheck to Paycheck
  • Civil Judgments

Let’s dig a little deeper into these reasons. Learning as much as you can about bankruptcy can help you make the right decision for you.

Medical Bills

It’s no secret that healthcare costs in the United States are rising. Even with insurance, people can expect to pay thousands of dollars in out-of-pocket expenses for major procedures.

Unfortunately, most people don’t have $1,000 in savings let alone a lump sum of cash to pay huge medical bills. Chapter 7 bankruptcy is a debt-relief solution that can wipe out your medical bills. In fact, two-thirds of filers are forced into bankruptcy by medical bills.


According to music legend Willie Nelson, divorces are expensive because they are worth it. The average divorce in Maryland costs $14,000 in lawyer fees. This doesn’t include property settlements, alimony and child support.

When married couples are happy, they share many expenses. This includes buying cars, homes and consumer goods on credit.

Whether couples are happy or going through a divorce, creditors still expect to get paid. During a divorce proceeding, financial responsibilities are divided. This can be hard on both spouses because they must maintain separate households and pay debts from a marriage that no longer exists.

Unemployment or a Decline in Business Income

A job provides income that you can count on every week, two weeks or month. You depend on this income to pay your rent, car payment and other bills. If you lose your job, your financial safety net goes away.

Depending on your industry and skillset, it can take months to find a job. Without savings, it’s easy to fall behind on your bills and default on loans.

Poor Spending Habits

Schools and many parents don’t teach their kids how to manage money. As a result, many people manage their finances through trial and error.

While it’s nice to wear designer clothes and take fun vacations, those expenses can add up quickly. This is especially true if you charge them on your credit card.

The most common way to mismanage money is to spend money without a budget. It’s difficult to know how you’ve spent your money when you don’t have a plan.

Big-ticket purchases such as cars and homes are other ways people mismanage their money. Sometimes, people have monthly car and mortgage payments that are too high for their incomes.

Lack of Financial Planning

Amazon is the largest online retailer in the world. Can you imagine Amazon and other large companies operating without a budget?

All major companies spend money based on an annual budget. However, only 20 percent of Americans plan how they are going to spend their income.

A budget is just one way to plan for your future. Other ways include buying life/health insurance, having a savings plan and setting aside money for retirement. Unfortunately, many people are behind in these areas.

Living Paycheck to Paycheck

Wages in the United States haven’t grown in nearly 30 years. Cars, food and houses have become more expensive. Many families can’t afford these expenses. It’s common for people to live paycheck to paycheck.

Most people count on their next paycheck to catch up on their bills every month. Financial problems can occur when they receive their paychecks late or their employers go out of business.

Living paycheck to paycheck is like stacking a long line of dominoes. One missing check can cause your finances to fall apart.

Civil Judgments, Wage Garnishments and Bank Levies

Getting a judgment from a creditor can have a negative impact on your life. Not only can a civil judgment ruin your credit, it can lead to wage garnishments and bank levies.

A civil judgment gives creditors the authority to collect payment for a debt – by any means necessary. This includes taking up to 25 percent of your paycheck or garnishing your bank account.

When it comes to money, most people have good intentions. They want to pay their bills on time and make good on their promises.

For most people, filing bankruptcy in Maryland is a last option. Unfortunately, these and other circumstances are common reasons people file bankruptcy in Maryland.

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