How Unemployment Rates Affect Bankruptcy Filings
By: Dean Matthews | Posted: 21st September 2010
Ron Brown is a bankruptcy lawyer in Tulsa, and the owner of the Brown Law Firm, which specializes in the cases of bankruptcy. According to Brown, unemployment and bankruptcy are always connected, because the higher the unemployment rate in the country, the more people are filing for bankruptcy at any given time.
Increased Unemployment Rate
Being unemployed can oftentimes hinder a person's ability to file for bankruptcy, since debtors are required to have a stable source of income in order to file for a Chapter 13 bankruptcy. I have seen an increase in clients coming into my office since the recession began. There have certainly been a lot more filings, which has a lot to do with the increased unemployment rate and job layoffs in the Oklahoma area. Without a source of income, debtors oftentimes have a difficult, if not impossible, time paying off their creditors.
The problem is that these same people can have a hard time being able to afford to file for bankruptcy as well. What I have noticed is that people who don't have jobs can almost be too broke to file for bankruptcy a lot of the time. If you wait too long, and if you are unemployed for too long of a period of time, then you can easily get to the point where you can't buy the food on your table. How can you afford to pay for a bankruptcy case on top of that?
Filing for bankruptcy can actually be counterproductive for someone who has been out of work for too long, because the court filing fees are most likely going to add up to more than what the unemployed debtor can afford. Nonetheless, I still recommend that people in Tulsa speak with a bankruptcy lawyer even if they don't think they have enough resources to pay for the case, since most lawyers will work out some type of payment plan for clients in trouble.
Chapter 13 Bankruptcy
Not having a job can be a serious impediment to filing for a Chapter 13 bankruptcy, because a Chapter 13 bankruptcy is essentially debt reorganization, rather than total debt relief. When you normally pay back debts, your payment is determined based on the amount of the debt. So you would take the debt, and then divide it by three or five years to figure out your monthly or annual payments. Under debt reorganization, your attorney will determine how much money you have coming in each month, and then set a payment based on that amount instead of basing it on the total amount owed.
The debtor must have money coming in each month to file for a Chapter 13 bankruptcy. If not, he will not be able to pay any money towards the debts in the reorganization process. That is why when a debtor is unemployed and in trouble, his best option is usually a Chapter 7 bankruptcy.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a straight liquidation, which means that filing for this type of bankruptcy will essentially wipe out all of a person's bills and allow him to start over. It is a chance for a fresh start. Because of its lack of income requirements, Chapter 7 is by far the most popular type of bankruptcy for people to file for right now.
If you are too broke to pay for your house anymore, or any other asset-backed debt, then the next step is to file for a Chapter 7 bankruptcy and get rid of that financial obligation altogether. In a Chapter 7 bankruptcy, you would be able to discharge all of the debt immediately, as compared to a Chapter 13 where the debt is only discharged at the end of the debt reorganization process.
On the other hand, when filling for a Chapter 7 bankruptcy, debtors will not get to keep as many of their assets as they would with a Chapter 13 bankruptcy. In Chapter 7, you only get to keep what is exempt. All assets that are non-exempt—which would vary from case to case—can be taken away by the bankruptcy trustees and used to pay unsecured creditors.
As a bankruptcy lawyer to people in Tulsa, I think the best plan is to make mortgage payments your first priority, second only to car payments. After that, you should take the money that is left over and pay off your credit cards and other debts. Look at what you have, and figure out if you can really afford it. Try to determine how you are going to handle your debt, and get a good game plan together for your life.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
Ron Brown is a writer for Yodle, a business directory and online advertising company. Find alawyer or more lawyers articles at Yodle Consumer Guide.
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Tags: period of time, hard time, recession, jobs, lawyers, chapter 13 bankruptcy, creditors, debtor, impediment, debtors, unemployment rate, filing for bankruptcy, stable source, bankruptcy case, bankruptcy lawyer