One of the most common life crises that leads to bankruptcy is a job loss. Filing for bankruptcy after a job loss can be an intelligent decision for some people, as they may struggle to make monthly debt payments. There are many things to consider before filing the petition, however, and not every jobless person in Dallas who is in debt should file for bankruptcy.
Filing Chapter 7 or Chapter 13 after a Job Loss
There are two types of bankruptcy for consumers:
- Chapter 7 bankruptcy: Liquidates your property, except for exempt property like one motor vehicle, clothing, household items, and other things, and uses the proceeds to pay off your debts. The rest of the debt is discharged and you are no longer responsible for paying it back.
- Chapter 13 bankruptcy: Involves the petitioner proposing a repayment plan to pay off all debt or a proportion of their debts for a few years while the rest of the debts may be discharged. The benefit to this type of bankruptcy is that it lets petitioners make up arrears on their mortgages and other secured debts.
Both types of bankruptcy depend on the means test. If the petitioner’s six-month average salary prior to filing is below the state’s median income, then he or she passes the means test and qualifies for chapter 7 bankruptcy.
People can also qualify for chapter 7 by showing they don’t have enough disposable income after subtracting allowable expenses to pay their debts. Additionally, if a chapter 13 petitioner cannot pass the means test, they must repay debts as part of their plan for five years instead of three years.
Benefits and Drawbacks of Filing for Bankruptcy after a Job Loss
One of the biggest benefits to filing bankruptcy after a job loss is that the petitioner often is in a better position to pass the means test. This is because their six month average salary includes multiple months of no income or only receiving minimum unemployment benefits. People can wait a few months after a job loss to pass the means test to qualify for chapter 7. Many petitioners can benefit from the debt discharge rules of chapter 7 or the short repayment period of chapter 13.
Perhaps the biggest drawback of billing for bankruptcy is the adverse impact on the filer’s credit report. The petitioner may not be able to receive as much credit or as favorable terms as more qualified borrowers.
Filing for bankruptcy also costs money for:
- filing fees;
- trustee payments; and
- attorney’s fees.
If you think you may be able to find a similar job in the near future, it may be in your interest to hold off on filing for bankruptcy.
How a Lawyer Can Help Me Make a Decision
While you’re probably the best judge of when you can find a new job, an attorney can explain your legal rights in the bankruptcy process. He can tell if you meet the means test as well as whether or how much of your debt could be discharged in bankruptcy. If you decide to file for bankruptcy, an attorney will make sure your petitions and financial disclosures are in compliance with the law.
Warren & Migliaccio can help jobless individuals in Dallas considering filing for bankruptcy, explain how to file for bankruptcy, and help throughout the process. Contact our office at 888-584-9614 to schedule a free consultation concerning your finances.