If you're facing an impending job loss and already struggle with debt, you may wonder how you can survive. But the benefits of bankruptcy could provide the financial protection you need and deserve. The question you must face, though, is whether to pursue bankruptcy before or after you lose a job. Here are the pros and cons of both choices.
The Pros and Cons of Filing Bankruptcy Now
First off, you may need the immediate protection of bankruptcy now and can't wait. If you face repossession or foreclosure, are being harassed by creditors, or have garnishments pending or in force, don't delay in seeking the automatic stay against collections efforts provided by bankruptcy.
On the other hand, if you have more assets now and plan to file Chapter 7 (liquidation) bankruptcy, you'll lose more of those assets to creditors. You also may not qualify for liquidation if your income is too high.
Alternatively, if you opt for a repayment plan (Chapter 13), the payments calculated now may be too high if you lose your job later. If this happens and the payment plan becomes unsustainable, your case may be converted to Chapter 7. This would likely result in losing both the asset and your prior payments.
The Pros and Cons of Filing Bankruptcy Later
The benefits of filing for bankruptcy after becoming unemployed may come from buying extra time. If the expected job loss doesn't actually materialize, you may still be able to turn things around. At the very least, you buy more time to try alternatives such as negotiation with creditors or credit counseling. However, you will lose more assets through collections if you wait too long.
What if both the bankruptcy and job loss are unavoidable? Higher-earning individuals who are okay with walking away from assets will find it easier to qualify for Chapter 7 if they earn less. And a repayment plan calculated when you have a low income (including unemployment checks, which are almost always lower) will result in a larger eventual discharge because of lower payments during the three- to five-year plan.
Where to Start
Clearly, many factors affect what is the best time to declare bankruptcy when your employment is in flux. The best way to have confidence in your decision is to consult with a bankruptcy attorney in your state. Because each bankruptcy case is unique, they will assess your particular financial and employment situation to find the right balance between speed, assets, and income. Click here for more info about bankruptcy or contact a bankruptcy attorney.
