Handling Debt After Job Loss
Bankruptcy in Kentucky
Although it is rarely anyone’s first choice, bankruptcy may be your best option for a fresh start. While it certainly does have its drawbacks, if you find yourself in a financial hole and feel you can’t get out on your own, bankruptcy may help. For personal bankruptcy, there are a few options, including the two most popular:
- Chapter 7 – Chapter 7 allows most, if not all, debts to be removed, allowing the individual a completely fresh start.
- Chapter 13 – Under Chapter 13, the individual is given a temporary reprieve and an opportunity to repay some of the debt they’ve accrued. This works best for individuals with a steady income. A court-ordered repayment plan and potentially renegotiated terms will give the person the chance to make their way out from under some of the worst debt and hopefully emerge financially strong.
Bankruptcy’s Effect on Cash Flow and Debt
Whether you file for Chapter 7 or Chapter 13 bankruptcy protection, each will affect your cash flow in a different way. Chapter 7 bankruptcy promises a “fresh start” by eliminating all of your eligible debt without any required payments to creditors. Eligible debt includes most credit card debt, medical bills and even income taxes that are more than three years old. Since you no longer have to make these debt payments, your cash flow can improve significantly after filing Chapter 7 bankruptcy.
Chapter 13 bankruptcy requires payments to creditors for either three or five years, depending on your income. If you make more than the median income in your state for a family of your size, you’ll usually have to endure a five-year plan. The courts generally require you to put all of your disposable income toward your creditor payments, so you won’t have a lot of free cash for the duration of your plan.
Bankruptcy does have some drawbacks. It remains on your credit report for seven years or more. It may also make it difficult to get credit or loans. When credit and loans are available, it may be at rates far higher than you were used to. However, as credit is rebuilt, your ratings will eventually return to normal and may be potentially better than when you started.
Let Bunch & Brock Help
Bunch & Brock attorneys understand the troubles our clients face after a job loss. Practicing law out of offices in Lexington, Ky., for more than 35 years, we have witnessed many ups and downs in the economy. This experience has given us invaluable insight into how to keep you afloat during rough times. We have the knowledge, experience and resources to give you the information and options you need to help you make tough decisions. Attorneys at our firm are here to help you during a period of unemployment. They can assist you in making decisions that maintain your best interests while stabilizing your financial future. For answers to your questions or to set up a consultation, contact us online or call us at 859-254-5522 to discuss your best option.
Job Loss in Kentucky
No matter how hard you work, it can happen to you. Whether it is caused by a downsizing, a layoff, an injury at work, or even just a bad exchange with a boss, most of us are closer to being unemployed than we’d care to admit. What if the unthinkable happens? For those who have worked hard their whole lives, suddenly becoming unemployed is a life-shattering shock, one many don’t know how to deal with. Even the simplest tasks may be overwhelming – when the money runs low, which bills should be paid first? Is it ever okay to pay late? And at what point does bankruptcy become a viable option?
Tips for Prioritizing Your Financial Obligations
If you feel it may be possible to get through financial difficulties brought on by job loss or other reasons, there are some prudent steps to take to try to strengthen your financial situation and keep up with bills. The first priority is to pay the most important bills first:
- Pay family necessities like food and essential medical expenses.
- Pay your mortgage or rent.
- Keep your utilities on to keep your home livable.
- Pay your car payments and auto insurance.
- Stay current on child support payments.
- Pay income taxes.
Defining Low-Priority Expenses
Some bills and expenses may be a lower priority than others. Consequences for non-payment may not be as harsh or as immediate. These financial commitments may include unsecured debt or loans using household goods as collateral.
Protect Yourself: Debt Collection in Kentucky
Debt collection efforts by creditors should not persuade you to move a debt up in priority. As a general rule, debt collectors are interested in one thing: the debt you owe them. They may often attempt to use intimidating or deceptive tactics. However, according to the Federal Trade Commission, under the Fair Debt Collection Practices Act, you have specific rights that protect you. Debt collectors may not:
- Contact you before 8 a.m. or after 9 p.m.
- Contact you at work if they’ve been informed it is not allowed at your place of employment
- Inform anyone, including a third party, that you are in debt for any reason
- Abuse or harass you or disparage your reputation in any way
- Misrepresent the amount of debt
- Use dishonest methods to collect debt.
How to Approach Your Bankruptcy after Losing Your Job
This answer assumes you are already in a Chapter 7 or 13 bankruptcy.
Each one is, of course, different, depending on the chapter under which you filed. If you are in Chapter 13 and cannot afford the bankruptcy plan payment without the income from your job, and the single three-month deferment of your Chapter 13 plan payment schedule will not help, you could lose your home and cars. So you have three options AFTER you get your attorney to get you the three months’ “breathing room” of deferred Chapter 13 payments:
- Contact the lender who holds the note on your home and see whether you can modify the terms of your mortgage loan. Many we know of are successful when doing this inside their Chapter 13 bankruptcies. Your lawyer comes in handy because you need an attorney to authorize the lender to talk to you. Maybe you can buy some more time with this option as you look for work.
- You can arbitrarily drop your Chapter 13 petition by filing a motion with the court to dismiss your case, choosing to deal with your debt holders (home mortgage company, car lender, credit card companies, etc) yourself.
- With the loss of income, you might qualify for a Chapter 7 bankruptcy where the loss of income likely only necessitate that you make “essential monthly payments” and pay nothing to your other creditors. But there’s a danger. Find out whether you have assets that would not be protected if you file Chapter 7 bankruptcy. Converting to a Chapter 7 could be a calamity if you have positive equity in your home or in an unprotected vehicle. You would lose those assets because the trustee would sell them to pay creditors.
If you lose your job while in a Chapter 7, since you’re looking to remove all your debts, whatever is on your protected list after your “means test” remains so (autos and homes usually are) and what is not is subject to seizure and sale by the trustee.
For more than 35 years, the attorneys at Bunch & Brock have been serving our community and the entire state of Kentucky with their legal needs. We don’t just serve the community – we are members of it, and we look forward to helping our neighbors when they need us. If you have legal questions or would like to set up an appointment, contact us online or call us at 859-254-5522.