Filing Bankruptcy After Job Loss

October 19, 2011

Many American families rely on two incomes to pay the monthly bills and set a little aside as savings. When one income is unexpectedly reduced or eliminated, the family is thrust immediately into a crisis mode. Often there is not enough money to pay all of the family bills, so touch choices must be made.

The first thing to do is to be realistic and not overreact. It is important to use savings wisely during this time and to safeguard retirement. Spending these funds to maintain your lifestyle is not good financial management, and will have long-term consequences. In most cases a substantial amount of cash and all of your retirement funds can be protected if you need to file bankruptcy. Likewise, most assets are protected during bankruptcy, so it is not necessary to sell assets to pay creditors.

Second, prioritize your spending. This may mean eliminating or reducing certain “luxuries” like premium tv channels or inflated cell phone plans. Creditors must be prioritized also. For instance, it may be more important to pay the car payment instead of a medical bill. If you file a Chapter 13 bankruptcy, your secured creditors receive a higher priority than unsecured creditors. That means your home mortgage and car payment are paid before credit cards and medical bills. You keep the house and car while unsecured creditors receive little or nothing.

Third, understand the consequences of late payment and default. There may not be enough money to pay all of your creditors, so what happens if you don’t pay a bill? In some cases filing bankruptcy will actually help your credit over the long haul. Bankruptcy stops all creditor action, including negative reporting to the credit bureau. By filing bankruptcy you can avoid additional negative reports like late payments, default, charge-offs, repossession or foreclosure.

Whether to file bankruptcy after a job loss depends on a number of circumstances. The best advice is to consult an experienced bankruptcy attorney and discuss your financial options. Bankruptcy can help you reorganize your finances when there is not enough money to pay all creditors. Your attorney can help you prioritize your spending and protect your assets.

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