When people lose a job, seldom do they see this as an opportunity for financial empowerment. If you have substantial amounts of debt, however, and you lose a job, then your job loss might present an attractive opportunity to get rid of debt, which might not have been present otherwise due to your employment income. In this post, we’re going to discuss the details regarding how losing a job can be an opportunity to eliminate debt through Chapter 7.
Eligibility for Chapter 7 – Income Restrictions
Chapter 7 bankruptcy allows eligible debtors to discharge (literally, the “wipe away”) certain financial obligations without any repayment requirements. Depending on the specifics, a debtor claiming Chapter 7 may need to forfeit certain assets in order to pay back creditors; but, this isn’t always the case, as it depends on the asset profile of the debtor in question. What’s more, certain debts, such as student loans and “domestic support obligations,” are ordinarily unable to be discharged under Chapter 7.
Eligibility for Chapter 7 depends on several things. One requirement is that the debtor must meet certain income restrictions. The income restrictions of Chapter 7 bankruptcy are (wisely) crafted according to the cost of living in a particular State and county area. Hence, someone in Los Angeles, CA, will have different income restrictions than someone from Jackson, Mississippi. But the income restrictions operate in the same way: if a person’s income is at or below the median income for someone from the same household size, then that person will be considered eligible to file Chapter 7 (at least on these grounds). If, however, a person’s income exceeds the median, then he or she may still be able to file, but he or she must pass the so-called “means test.”
Unemployment Will Impact Income Averaging
The means test basically determines whether a given person has sufficient disposable income to create a repayment plan. If a person does have sufficient disposable income, then that person won’t qualify for Chapter 7. One critical point which is relevant here is that, for the purposes of meeting the requirements of Chapter 7, a person’s monthly income is derived by averaging his or her income from the most recent 6 month period. This means that a person’s income for Chapter 7 purposes may vary substantially from how that same person performed financially in any given month prior to filing bankruptcy. In the case of someone who loses a job, an opportunity may arise to file bankruptcy (and eliminate debts via Chapter 7) as soon as the newly unemployed person’s monthly income is lowered because of the 6 month income averaging. So, in many cases, this means that a newly unemployed person might suddenly be eligible for Chapter 7 bankruptcy in 1 or 2 months down the line. Again, it’s not often that we attempt to find a silver lining in a job loss, but being able to wipe out debts via Chapter 7 may be one of those rare exceptions.
Contact Financial Freedom Advocates for More Information
Hopefully, this information was helpful to our readers. If you need more information, however, don’t hesitate to reach out to Financial Freedom Advocates
today by calling 786-668-6688.