Job loss is one of the top reasons why people decide to file for bankruptcy. Their debt level may have been fully sustainable when they had a steady income, but the loss of a job means they just cannot afford to pay all their bills. These start to add up, and they eventually file for bankruptcy to get rid of the debt.
But that assumes that they do not have an income, which is why they are in this position in the first place. As such, there is a means test for Chapter 7 bankruptcy. Someone who still has a significant income may fail this test, meaning that they cannot use Chapter 7. If you are in this position, do you have any other options?
Chapter 13 bankruptcy
You do, and one is to use Chapter 13 bankruptcy instead of Chapter 7. This can still help you address your debt and create a more positive financial future, but it does so in a different way.
Instead of liquidating assets like you would with Chapter 7, you keep everything that you own and just consolidate your debt into a repayment plan. The court will help with this process by looking at your income and determining what you can afford in your post-bankruptcy budget. You will then be ordered to make monthly payments, generally for anywhere from three to five years.
This type of plan makes sense for someone with an income because the problem is just that their debt cannot all be paid off at once. But spreading it out over five years may make it affordable, so this helps to give you some more financial stability based on your personal circumstances.
As you can see, it is very important to understand all the bankruptcy options that you have and the legal steps you can take.