Losing your job can be a scary experience. You may worry how long it will take you to find something else, and if the unemployment goes on long enough, you may see your debt grow or start missing bill payments. If things have already been tight financially, unemployment may push you toward filing bankruptcy. Job loss is one of the top reasons people file bankruptcy, so you aren’t alone. If you don’t have a job, there are a few things you’ll need to consider before taking action.
One of the most important decisions you’ll make about your case is which chapter of bankruptcy you’ll file. Chapter 7 is meant for people who do not have enough disposable income, after their basic expenses are accounted for, to pay off their debt in a reasonable length of time. This is determined by conducting the means test. In these cases, being unemployed is not a problem; in fact, it makes your case stronger. If your income is below the median for a similar household in your area, you automatically pass the Means Test and are eligible for a Chapter 7. Even if you’re receiving unemployment benefits, your income may be below the median. Most Chapter 7 bankruptcies are also considered no-asset cases. This means filers do not have any non-exempt property that can be sold to repay creditors. Debts such as credit cards, medical bills, and other unsecured debts are discharged in a Chapter 7. There is a chance you may lose your home or car in a Chapter 7, but we will most likely be able to use exemptions to protect this property.
Some people prefer a Chapter 13, especially if their income is high or they’ve fallen behind on their mortgage and want to keep their house. Over the course of three to five years, filers make reduced payments on their debts, and at the end of that time, most debts are discharged. It may be possible to cram down a car payment, discharge a second mortgage, and roll mortgage arrearages into the payment plan. This may make non-dischargeable debts such as child support and student loans more manageable. If you’re unemployed, it may be difficult to demonstrate to the court that you’re able to keep up with your payment plan. But, if you’re receiving unemployment or other income or if your spouse has a job, a Chapter 13 may be possible. If you don’t have any income, it’s not likely the court will approve a Chapter 13, and you may need to file a Chapter 7. If you get a job during the bankruptcy process, notify me right away so that we can make the right plan.
A New Start
Losing your job doesn’t have to mean a dead end. It could lead you to a new career and could be the catalyst that drives you toward financial freedom through bankruptcy. Being worried is understandable, but I’m here to help. Together, we’ll get you pointed in the right direction.