The job market is tough and many people are finding themselves unemployed after many years of loyal service to their employers. Finances become tight, bills pile up and savings accounts dwindle. While securing employment is at the top of the list of priorities, there are cases in which this isn’t possible or the employment isn’t adequate to maintain debt payments. In such cases, filing for bankruptcy is an option to resolve financial hardships.
Although the consensus is that debts are a personal responsibility and should be repaid, bankruptcy can provide relief during hard times in other ways. Filing the petition stops credit collections and allows time for developing a plan to resolve debts. When unemployed, filing for Chapter 7 may be the best option. The reason is that one’s income is used to determine eligibility for filing and helps the courts determine how debts are to be repaid.
Filing for Chapter 13 may not be an option for the unemployed since the repayment plan is based heavily on one’s income and ability to repay. However, if a debtor files for Chapter 7 initially while unemployed they may ask the court to transfer their case to Chapter 13 in the event they secure employment during the bankruptcy process. If employment is obtained prior to filing and it is not sufficient for repaying debts, the court may still allow the filing and grant a debt discharge.