In America, job loss is the number one reason that people file for bankruptcy. For most people, having a large savings account that you can live off of for months on end is a great idea, but not a reality. When a job loss happens, most of the time, it isn’t expected and can be quite unnerving. Depending on how long you have been with that employer, it may have been years since you have searched for employment. That makes it very hard to know how long the process will take. Even with unemployment benefits, many people aren’t able to keep up with their monthly obligations once they are unemployed. As you start getting behind and missing payments, your debt can snowball and it can become impossible to catch up. If you have lost your job, here are a few things to think over before taking action.
If you are considering filing bankruptcy, one of the most important decisions you will make is which chapter to file. Chapter 7 is designed for people who don’t have enough disposable income after their basic expenses are paid to pay off their debt in a reasonable amount of time. The court determines this by conducting the means test. Don’t worry if you are unemployed; it actually makes your case stronger, since you don’t have a reliable income. If your income falls below the median income for a similar household in your area, you automatically pass the Means Test and are able to move forward with filing a Chapter 7 bankruptcy. Most likely, even with unemployment benefits, your income will still fall under the median level. When considering filing a Chapter 7, you should take a look at any assets you may have. This could be a second home that you could sell to pay back creditors. It is possible that you could lose your primary home or car, but we will most likely be able to use exemptions to protect this property. Other debts such as credit cards, medical bills, and other unsecured debts are discharged in a Chapter 7.
If you have a high income or have fallen behind on your mortgage payment but want to keep your home, you may prefer a Chapter 13 over a Chapter 7. With a Chapter 13, you create a repayment plan where you make reduced payments over the course of three to five years. At the end of the repayment plan, most debts are discharged. You may be eligible to cram down a vehicle payment, discharge a second mortgage, and roll mortgage arrearages into the repayment plan. By making some of these strategic moves, it may make non-dischargeable debts such as child support and student loans more manageable. If you are unemployed, you may find it difficult to convince the court that you will be able to keep up with the repayment plan. However, if your spouse is working and you are receiving unemployment benefits, you may still qualify for Chapter 13. If you move forward with a Chapter 7 and during the bankruptcy find a job and want to change to a Chapter 13, let me know as soon as possible so we can make a change to the right plan.
A New Start
Losing a job can be a stressful time; add financial difficulties on to that and it can be a tremendous amount of stress. But it doesn’t mean the end of the road for you. It can be a new start, both leading you to a new career and gaining financial freedom through bankruptcy. I am here to help you.