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How Job Loss Affects Your Bankruptcy Case
Jan 04, 2022
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Bankruptcy gives many debtors the fresh start they need to gain control of their debts, lower their monthly expenses, and establish a solid financial future. For some debtors, their bankruptcy cases don't go as planned. Job loss is one adverse situation that can affect your bankruptcy. Keep reading for important information regarding job loss and your bankruptcy case.
Job Loss Impact Varies Based on Your Specific Bankruptcy
The two most common types of bankruptcy for most debtors are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Which type of bankruptcy you file will influence the impact of your job loss.
Chapter 7 bankruptcy requires you to liquidate your non-exempt assets and use the proceeds to repay your debts; the bankruptcy trustee then dismisses the remainder of your qualifying debt. Only certain debtors qualify for Chapter 7 bankruptcy, as your income must be less than a specific amount. The exact income limit varies based on your household size and the state you live in.
Job loss increases your chances of qualifying for Chapter 7 bankruptcy. However, you may lose some of your assets to debt repayment.
Retirement accounts, like 401(k) plans, are typically exempted from your bankruptcy case. To ensure that your 401(k) savings aren't used to repay your debts, you must keep the funds in some type of retirement account (not a savings or checking account). You can keep your funds with the brokerage firm that handles your former employer's 401(k) plans, or you can roll the money into an IRA.
Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in that you repay a portion of your debts over three to five years. It's commonly used by debtors who are behind on their mortgage or auto loans, as the debtor can use the repayment period to get caught up on past due loan payments. The trustee dismisses the remaining eligible debts once your payment plan ends.
Individuals with incomes too high for Chapter 7 bankruptcy may file for Chapter 13 bankruptcy instead; if you're filing as a married couple with your spouse, your spouse's income will also count towards the bankruptcy case.
If your job loss lowers your income, you may not qualify for Chapter 13 bankruptcy. The bankruptcy trustee can refuse to approve a repayment plan if they believe the debtor doesn't have sufficient income to make the payments.
Some debtors may benefit if they file for Chapter 7 rather than Chapter 13 bankruptcy. However, if you have assets that you want to protect or need to get caught up on your home or mortgage payments, being ineligible for Chapter 13 bankruptcy can put your possessions at risk.
Job Loss After Your Chapter 13 Payment Is Approved
Your job loss may occur months or even years after the bankruptcy trustee approves your Chapter 13 plan. If this happens, you must be proactive, as you'll likely struggle to make your monthly payments due to your income reduction. You have a few options, and your best alternative depends on the specifics of your situation.
If you believe your job loss is likely to be temporary, you can ask your attorney to file for a short-term suspension of your Chapter 13 payments. This will give you the opportunity to find a new job.
However, if you find that your income is significantly lower or you believe you'll be without income for an extended period, your lawyer may be able to file for a reduction of your Chapter 13 payment. Depending on the severity of your income loss, you can request a hardship discharge. A hardship discharge eliminates your remaining qualifying debts and functions similarly to a Chapter 7 bankruptcy.
Are you concerned about your ability to repay your debts? If so, contact Custer, Custer & Clark LLC Attorneys at Law to schedule a consultation.
Job Loss Impact Varies Based on Your Specific Bankruptcy
The two most common types of bankruptcy for most debtors are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Which type of bankruptcy you file will influence the impact of your job loss.
Chapter 7 bankruptcy requires you to liquidate your non-exempt assets and use the proceeds to repay your debts; the bankruptcy trustee then dismisses the remainder of your qualifying debt. Only certain debtors qualify for Chapter 7 bankruptcy, as your income must be less than a specific amount. The exact income limit varies based on your household size and the state you live in.
Job loss increases your chances of qualifying for Chapter 7 bankruptcy. However, you may lose some of your assets to debt repayment.
Retirement accounts, like 401(k) plans, are typically exempted from your bankruptcy case. To ensure that your 401(k) savings aren't used to repay your debts, you must keep the funds in some type of retirement account (not a savings or checking account). You can keep your funds with the brokerage firm that handles your former employer's 401(k) plans, or you can roll the money into an IRA.
Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in that you repay a portion of your debts over three to five years. It's commonly used by debtors who are behind on their mortgage or auto loans, as the debtor can use the repayment period to get caught up on past due loan payments. The trustee dismisses the remaining eligible debts once your payment plan ends.
Individuals with incomes too high for Chapter 7 bankruptcy may file for Chapter 13 bankruptcy instead; if you're filing as a married couple with your spouse, your spouse's income will also count towards the bankruptcy case.
If your job loss lowers your income, you may not qualify for Chapter 13 bankruptcy. The bankruptcy trustee can refuse to approve a repayment plan if they believe the debtor doesn't have sufficient income to make the payments.
Some debtors may benefit if they file for Chapter 7 rather than Chapter 13 bankruptcy. However, if you have assets that you want to protect or need to get caught up on your home or mortgage payments, being ineligible for Chapter 13 bankruptcy can put your possessions at risk.
Job Loss After Your Chapter 13 Payment Is Approved
Your job loss may occur months or even years after the bankruptcy trustee approves your Chapter 13 plan. If this happens, you must be proactive, as you'll likely struggle to make your monthly payments due to your income reduction. You have a few options, and your best alternative depends on the specifics of your situation.
If you believe your job loss is likely to be temporary, you can ask your attorney to file for a short-term suspension of your Chapter 13 payments. This will give you the opportunity to find a new job.
However, if you find that your income is significantly lower or you believe you'll be without income for an extended period, your lawyer may be able to file for a reduction of your Chapter 13 payment. Depending on the severity of your income loss, you can request a hardship discharge. A hardship discharge eliminates your remaining qualifying debts and functions similarly to a Chapter 7 bankruptcy.
Are you concerned about your ability to repay your debts? If so, contact Custer, Custer & Clark LLC Attorneys at Law to schedule a consultation.
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