Considering the state of the economy, the number of bankruptcy filings throughout the United States has not increased as much as might be expected. Bankruptcy filings rose 3.7 percent, according to the U.S. Courts; this number is far less than the percentage of unemployed Americans during the same period. It should be noted, however, that bankruptcy filings typically lag behind other economic indicators such as unemployment. For example, filings in the areas affected by Hurricane Katrina did not significantly rise until three years after the disaster.
For people trying to file bankruptcy being unemployed poses a problem, because to file a Chapter 13 the debtor must have a source of income. Chapter 13 bankruptcy is a way for people to get out of debt by repaying creditors under the supervision of the court. Because people without jobs have no source of income with which to repay the creditors, their debts cannot be addressed in a Chapter 13.
That said, those who cannot meet the requirements to file for Chapter 13 bankruptcy often lack assets that could be seized and liquidated in the first place. This means that even if there is a judgment against them, there is nothing creditors can collect. Retirees with no other income beyond Social Security are often similarly situated because Social Security is creditor-proof.
Even though filing bankruptcy is not always a viable option for the unemployed, there are other alternatives for people overwhelmed with financial obligations. Banks are increasingly willing to negotiate with customers to lower monthly payments or extend the length of loans rather than foreclosing on yet another property.
Ironically, an increase in the number of bankruptcies is likely to be associated with economic recovery. When unemployed debtors finally do secure new employment, creditors see the opportunity to garnish these newly attained wages to collect on unpaid debts. In cases like this, bankruptcy is a viable course of action to get out of debt under the protection of the court.
If you have questions about filing bankruptcy, contact an experienced bankruptcy attorney to lean about solutions that will work for you.
