There is an assumption that bankruptcy protections are only necessary for those who have extremely low income. This population is certainly at risk of overwhelming debt, which is why Chapter 7 bankruptcy exists. If someone's income is below the state average and their debt is high, Chapter 7 bankruptcy can help that person build a new start. However, debt issues are common among those with higher incomes as well. Overspending is a common issue.
The more prestigious your position, the greater the potential temptation to live beyond your means. You may feel like you need to "keep up with the Joneses" by driving an upscale vehicle, wearing designer clothing or living in a massive home. In time, however, your attempt to fake it until you make it could leave you unable to meet your monthly financial obligations.
Credit card debt builds up quite quickly
If you enjoy shopping or have a taste for the finer things in life, impulse purchases can quickly max out your credit cards. Even if you don't quite exceed the limit for your card, carrying a balance from month to month can create quite a financial headache. With interest rates that often exceed 20 percent, credit cards take on massive financing and interest charges to those purchases, leaving you paying much more than the items cost.
If you miss payments, then you have to worry about penalty interest rates, overlimit fees and missed payment fees. Those charges can add quite a bit to your monthly expenses, especially if you're racking up fees on multiple credit cards at the same time. You could find yourself making only the monthly minimum payment or even unable to continue that.
Collections can become aggressive quite quickly
Missing a payment by a day or two can be enough to trigger the first round of collection calls. Your phone will start ringing off the hook. Collection agents may even try calling you at work or call your mobile phone during the day in the hopes of prompting you to talk with them. If you can't make a payment or you studiously avoid taking the calls, you could find yourself up against more aggressive actions.
Lenders for automobile purchases can seek to repossess your vehicle. Companies that hold your unsecured debts, like credit cards, could file civil lawsuits against you, seeking to garnish your wages or otherwise compel payment. Facing these kinds of tactics can leave you scared to answer the door or the phone. Thankfully, you don't have to live in fear, even if your income precludes you from filing for Chapter 7 bankruptcy relief.
You can still seek the protections of Chapter 13 bankruptcy. Filing for protection will result in an automatic stay on collections actions, which can stop pending lawsuits or keep collection agents from calling you. You can then restructure your debt and work on a repayment plan, after which the courts will discharge the remainder of your debts.