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Job Loss and Filing Bankruptcy

Job Loss and Filing Bankruptcy

Job loss and filing bankruptcy often go hand in hand.

Job loss and filing bankruptcy often go together. Filing bankruptcy after loss of job, and your ability to pay, is the best option for many, but not all. Here is how to know if you should file bankruptcy after your income is reduced.

Job loss is often a prelude to filing bankruptcy. One day you are keeping up on the bills, getting by, and perhaps even saving some money. But life throws unexpected challenges at us without any advance warning.

COVID-19 Job Loss

Today, a record number of people have lost their jobs, and now need to file bankruptcy due to coronavirus job loss. Even if your job has not been eliminated or your income reduced due to the COVID-19 pandemic, you may still be affected by it, or soon will be. You need to know your options.

Job Loss is Part of Life’s Challenges

You may never have faced any threat to your income. If so, you are fortunate.  According to the Bureau of Labor Statistics, the average American will have ten different jobs before age forty.  If you are younger, you may expect to hold 12 to 15 different jobs in your lifetime.

Often, job loss, and subsequent need to file bankruptcy arise from circumstances you cannot foresee or control. Like the coronavirus. Virtually none of us ever heard of the Spanish Flu of 1918, but we have now! And, we are responding the best we can.

As difficult as it is to face debts you cannot pay, through no fault of your own, you do have options. Although it is difficult to find anything good in the COVID-19 caused job losses, some creditors, including mortgage servicers and credit card companies, are extending some debt relief, if you qualify.

Debt Relief Options for Job Loss to Avoid Filing Bankruptcy

Mortgage Forbearance

If you qualify, there is mortgage forbearance available. In an LA Times article by Andrew Khouri, April 30, 2020, 6:00 A.M., the truth emerges that this form of debt relief may create serious problems later. You’re gambling that you’ll recover your income in an amount sufficient to pay back the skipped payments.  If you’re considering mortgage forbearance, you need to consider chapter 13 bankruptcy before you make a final decision.

Credit Card Debt Relief

Some credit card companies are offering debt relief as well. A number of credit card offers are contained in this article found on Credit Karma updated on April 22, 2020. And, under the CARES Act, the Fair Credit Reporting Act (FCRA) was amended to stop adverse credit reporting during the COVID-19 crisis—but only under specific circumstances. The problem will be that credit card reporting will not be changed fast enough to stop adverse reporting, and many will likely see their credit score take a hit after taking advantage The CFBP, in an article dated April 1, 2020, outlines the CARES Act provisions for credit reporting.

Job Loss and Filing Bankruptcy

Many people will find that the COVID-19 inspired creditor assistance programs are simply not enough.  They already had no extra room in their budgets for emergencies. Most people don’t. In a recent survey reported by Newsweek, by Matthew Impelli, (3/4/2020 at  5:19 PM EST), more than half of Americans have no savings to fall back on if they get sick and can’t work.

If you’re facing bills with no possible way to pay them, bankruptcy offers different forms of relief, depending on your circumstances. Depending on the kind of debt you have, the length of your income interruption and your goals, you have several options to consider.

Job Loss and Chapter 7

There is no minimum income requirement to file Chapter 7. In fact, too much income may disqualify you from Chapter 7 bankruptcy relief. This is not a problem for many, and an experienced Chapter 7 bankruptcy attorney will be able to explain the means test and how it may affect you.

In a chapter 7 bankruptcy, most people keep their home, cars and all of their property, and pay nothing on their unsecured debts.

Restoring credit after filing chapter 7 is accomplished by following a program designed to establish new lines of credit, and carefully monitoring credit reporting to ensure that incorrect information is properly disputed.

Job loss and Chapter 13

Chapter 13 bankruptcy is a powerful tool. It can help you catch up mortgage payments in a way that doesn’t subject you to the “catch up trap” that the CARES Act forbearance programs create.

Chapter 13 can stop foreclosure, repossession and allow you to keep your home and cars, and catch up over time, up to 5 years, and still wipe out virtually all of your unsecured debts, in some cases paying on a penny on the dollar.  Just about like chapter 7!

Although there is a requirement that you have regular income to fund a chapter 13 plan, the income can be from unemployment, or other sources. So, job loss does not necessarily prevent you from filing a chapter 13 bankruptcy.


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Useful Calculators

Here are two helpful calculators for managing your debt repayments and Chapter 13 commitments.