As it stands today, the unempmloyment rate in the United States is at approximately 7.6%. As the charts indicate, it seems that the financial climate is improving and this number seems to be on the steady decline.
On the decline, but I am still meeting with many people who are either unemployed or underemployed. Most of these people are actively and aggressively looking for employment.
Loss of employment can create serious financial hardship for individuals and families causing people to “over extend” and rely more on credit.
As the debts mount, the expenses rise and this puts people on the path to bankruptcy.
As I try to put a positive spin on all things bankruptcy, I argue that in some instances, loss of employment could be a blessing in disguise.
A Case Study
To support my argument, I recall a case I handled back in the beginning of this year. My client, who worked in the food industry, came to see me after Hurricane Sandy and after being fired from his job.
Prior to the storm and the loss of employment, he was earning close to $200,000 per year, well above the State Median Family Income to qualify for chapter 7 bankruptcy.
After the loss of employment, he was earning just over $1,700 per month, well below the State Median Family Income needed to pass the dreaded means test.
So, like a means test sniper, I waited!
You see, in order to test the debtor’s means, the income from the previous six (6) months is averaged to determine if the debtor has available disposable income to pay back creditors.
Using some pre-filing planning, I waited until my client’s unemployment income brought down his six (6) month average, enabling him to pass the means test.
As a result of and thanks to his unemployment, he was able to discharge over $100,000 in debt incurred from a failed business venture.
Hello fresh start!
Embrace the Opportunity
Some people simply do not qualify for chapter 7 bankruptcy as their income is too high to pass the means test. Others fall somewhere in between and find themselves stuck in a bankruptcy wasteland with no options.
Loss of employment is a terrible event and can have dire financial consequences. On the other hand, it could spark the flame of financial relief.
If you have substantial debt and find yourself unemployed or demoted it may be wise to seize the opportunity and consider bankruptcy.
Hopefully, it will be your only bite at the bankruptcy apple.
Image courtesy of jronaldlee (Flickr).