Recently, a potential client reached out in distress. Just before Christmas, he lost his job and lucrative income, and wanted to know if he should immediately file for bankruptcy protection. It is not uncommon for a person, who has suffered a major financial setback, to look at bankruptcy as a solution. However, while you may feel it is necessary to start the process quickly, each situation needs to be looked at individually. There is no single answer that works for everyone.
With the specific person mentioned above, he was making good money, but has little in the way of savings and investments. Like many Americans, despite being able to pay all his bills, this individual was virtually living paycheck to paycheck. Worse yet, the layoff came right at the holidays. This potential client now faces using credit cards and cash advances to keep him and his family afloat. It seems only logical to consider bankruptcy. Don’t you agree?
Nonetheless, this is the time when one should pause and evaluate the situation. With a Chapter 7 bankruptcy, you must pass a means test. While you may think that having no source of income means something, it may have little impact in passing the means test. Essentially, you need to look at your income over the last six months. If the income before is greater than the state median income, then you may not pass the means test. If you wait just a few months, allowing your average income to go down, it will make things easier.
While income is a prime factor in determining if you should file, it is not the only factor. For instance, if you have a pending foreclosure or lawsuit, you may not have the luxury of waiting. You will want to discuss your unique situation with a qualified bankruptcy attorney.
What haven’t we covered yet that is important to you? If you have lost your job and are considering bankruptcy, or need more information, please contact us.