As part of Caterpillar’s planned workforce reduction, an undisclosed number of employees in Peoria received layoff notices earlier this week. Although the company says they are committed to helping impacted employees transition to other jobs within or outside the company, for many families who are stretched thin as it is, the impact of being out of work even for a short period of time will prove difficult.
Not surprisingly, unexpected layoffs across the country have resulted in many Americans contemplating bankruptcy protection. Many wonder if their job loss will qualify them for a Chapter 7 or Chapter 13 bankruptcy until they get back on their feet again.
Can I Qualify for Bankruptcy After Losing My Job?
Maybe not immediately. If you are considering Chapter 7 bankruptcy, you must pass the means test, which is a formula that sets a limit to the amount of money you can earn in order to qualify. If you have recently lost your job you may be thinking this will make it easy to qualify as your income is now likely very low. However, when determining what your “income” is, the bankruptcy court will look to an average of your monthly income over the last 6 months. Even though you may now be unemployed, the money you made over the last several months will be factored in so you may not qualify for a chapter 7 at this point. However, if you wait another month or two to file, your overall monthly average will come down and you may very well qualify. It is best to ask a bankruptcy attorney to find out where you stand.
What is the Difference Between a Chapter 7 and a Chapter 13 Bankruptcy?
The overwhelming majority of bankruptcy cases filed are Chapter 7 cases. There are many advantages to a Chapter 7 bankruptcy:
- It is a shorter process than a Chapter 13. The typical Chapter 7 bankruptcy case may take a few months whereas a Chapter 13 bankruptcy case will last a minimum of three years up to five years.
- Chapter 7 offers a complete discharge of your unsecured credit card-type debts. In a Chapter 13 case you will be required to pay back a portion of your debts through a monthly payment to the bankruptcy court.
- The recovery period for a Chapter 7 bankruptcy starts sooner simply because the case ends so much more quickly than a Chapter 13 case. Your credit will be restored more quickly in a 7 versus a 13.
Even though a Chapter 7 has obvious merits, a Chapter 13 has many powerful tools that a Chapter 7 bankruptcy does not. Namely, if you are at risk of losing your home because you cannot pay the mortgage, a Chapter 13 may help you to save your home from foreclosure.
The job situation in the U.S. has dealt some hard blows to many families. People who have recently lost their jobs or who are worried that they are next in line to be laid off may be concerned about how they are going to keep their home, car, or pay their bills and handle day to day expenses. Getting information about various options for handling a difficult financial situation before it becomes bigger is key.
If you are dealing with a job loss and are concerned with your current debt situation, contact the Law Offices of Charles E. Covey for a free initial consultation. Charles can provide you with the answers you need to make the best decisions for you and your family.
Source: Peoria Journal Star, “Layoffs from division consolidation at Caterpillar started Monday”, by Matt Buedel, August 29, 2016.