If you’re struggling to stay afloat financially and see no realistic way to repay your debts after a job loss, you may be considering Chapter 7 bankruptcy as a way to reset. While it’s not the right solution for everyone, Chapter 7 can offer a fresh start for many individuals who have lost their source of income and are burdened by unmanageable debt.
Chapter 7 bankruptcy is an opportunity made exclusively available to low-income households. It is designed to wipe out most unsecured debts, including credit card balances, medical bills and personal loans. In many cases, it allows individuals to discharge these debts without losing any of their assets, thanks to state and federal exemption laws that protect necessities like clothing, household goods and in most cases, a vehicle or home equity.
If you’ve recently lost your job, you may be more likely to qualify for Chapter 7 because eligibility is based in part on your income. The bankruptcy court uses a means test to determine whether you have the financial ability to repay a portion of your debts. With no current employment income—or a significant drop in income—many individuals meet the income requirements necessary to proceed with a Chapter 7 filing.
Moving forward
Timing your bankruptcy filing is important. If you’ve only just lost your job, you may want to wait a short period to clearly demonstrate your change in financial circumstances. Filing too soon after receiving a severance package or unemployment benefits could affect how the court views your income. A skilled legal team can help you decide the best time to file based on your full financial picture.
It’s also important to note what Chapter 7 cannot do. It will not eliminate secured debts unless you surrender the property (such as a car or home with a loan), and it will not wipe out recent taxes, student loans (in most cases) or court-ordered obligations like child support. However, for those drowning in credit card debt, payday loans and/or medical bills, Chapter 7 can be a powerful relief tool.
Choosing to file for bankruptcy is never easy, especially during a period of uncertainty. But it can offer breathing room and a clean slate when other options have been exhausted. With guidance from a knowledgeable legal professional, you can determine whether Chapter 7 is right for you and move forward with a plan that allows you to rebuild financially and regain control of your financial footing.