For some, a new job might mean filing for bankruptcy
Job loss is one of the main causes of bankruptcy. The Great Recession and subsequent years of a down economy spurred a spike in bankruptcies that has only recently begun to abate. Fortunately, the economy is now growing, albeit at a slow pace. Correspondingly, in 2013 the number of bankruptcies nationwide fell by 12 percent, according to the American Bankruptcy Institute.
There is a surprising side to the good news that previously unemployed people are finding jobs, however. A newly employed person may actually be more likely to file for bankruptcy than if he or she had remained unemployed. This is because many unemployed people do not have assets or income that creditors can go after. This makes it easier for financially challenged people to delay bankruptcy – understandably, many people are in no hurry to pay back creditors without any income, and with nothing to lose there is no incentive to begin the bankruptcy process.
Bankruptcy protects a debtor
Bankruptcy is primarily a way for a person to get out from unmanageable debt. As such, it offers the filer certain financial protections. In Chapter 13 bankruptcy, for example, the bankruptcy court reorganizes debt, in some cases eliminating or reducing interest so that the filer can pay off creditors under a three to five year plan. Under this type of bankruptcy a filer is able to keep many hard-earned assets, such as a home, so long as timely payments continue to be made.
Chapter 7 bankruptcy does allow the seizure of some assets. However, unsecured debt (debt not tied to any piece of property, like credit card balances and medical debt) will be wiped away. Some property is exempt, as well, so creditors cannot take everything a debtor owns in order to recover outstanding debt.
New employment, new resources
Unemployed people may not have had many assets or income that could be a target for creditors. For example, a person on Social Security Disability benefits cannot have those payments withheld because of outstanding debt. However, wage garnishment, repossession and creditor harassment is possible when a person is finally able to provide for some basic living expenses through work. This may force a person who has a new income source to protect it from creditors.
In bankruptcy, a debtor receives an “automatic stay,” meaning creditors cannot continue with collection actions until the bankruptcy is resolved. This means the bankruptcy filer will be able to keep his or her paycheck, delay foreclosure and repossession, and be free from phone calls and letters from debt collectors while the bankruptcy is proceeding. After bankruptcy, so long as the filer abides by the terms of the bankruptcy proceeding, creditors cannot try to collect debt through repossession or wage garnishment.
Contact a bankruptcy attorney
Long-term unemployment can wreak havoc on a person’s finances. If able to find employment again, it is important to have a manageable plan to be able to once again find secure financial footing. One option is to declare bankruptcy and start with a relatively clean financial slate. People struggling with debt should contact an experienced bankruptcy attorney to discuss their options.