Dealing with Debt After a Layoff: What You Need to Know

Layoffs are stressful enough without the added burden of overwhelming debt. If you’ve recently lost your job and are struggling to keep up with bills, you might be wondering whether filing bankruptcy after a layoff can help you regain control of your finances.

The good news is that bankruptcy exists for situations just like this—to give people a fresh start when life takes an unexpected turn.

As a Memphis bankruptcy lawyer, I’ve helped many people navigate the challenges of filing for bankruptcy after a layoff. Here’s what you need to know about your options and how to move forward.

How a Layoff Can Lead to Bankruptcy

A sudden loss of income can quickly throw your finances into chaos. Even if you qualify for unemployment benefits, they often aren’t enough to cover rent, mortgage payments, car loans, credit cards, and other living expenses. Without a steady paycheck, you may find yourself relying on credit cards, payday loans, or borrowing from family just to get by.

If you’ve already been struggling with debt, a layoff can push you even closer to a financial crisis. You lose much-needed income, and also sometimes lose access to critical health insurance.

And creditors don’t stop calling just because you’ve lost your job. As a result, we’ve worked with hundreds of clients who experienced layoffs and soon faced:

  • wage garnishments
  • foreclosure threats
  • car repossession
  • rising medical debt,
  • and more.

At our firm, we help our clients figure out their current situation, future goals, and all the options to help them get there. So here’s what you need to know if you’re dealing with debt after a layoff.

Can You File for Chapter 7 Bankruptcy If You’re Unemployed?

Yes! In fact, being unemployed can sometimes make it easier to qualify for Chapter 7 bankruptcy, which eliminates most unsecured debts, like credit cards, medical bills, and personal loans.

To be eligible for Chapter 7 in our home state of Tennessee, you have to pass a Means Test. This test compares your income to the median income for a household of your size. If you’ve been laid off and your income has dropped significantly, you may now qualify for Chapter 7 even if you didn’t before.

How Bankruptcy Can Help After a Layoff

Filing for bankruptcy can provide relief in a few keys ways:

Stops Collection Calls & Lawsuits

The moment you file, an automatic stay goes into effect, which stops creditors from harassing you, suing you, or garnishing your wages.

Eliminates Most Debts

Chapter 7 wipes out unsecured debts. As a result, you get a clean slate to start rebuilding your credit.

Protects Your Assets

In many cases, you can keep your home, car, and personal belongings thanks to bankruptcy exemptions that protect certain property from being seized.

Gives You a Fresh Start

Without the burden of debt, you can focus on finding a new job and setting yourself up for a better financial future.

Timing Your Bankruptcy Filing

If you’ve recently been laid off and are considering bankruptcy, timing is important. If you receive a severance package or unemployment benefits, these could impact your Means Test results.

It’s best to consult with a bankruptcy lawyer before making any decisions so you can maximize your chances of qualifying for Chapter 7. Our team offers a free consultation where we can talk with you about your specific situation and any timing factors to consider.

What If You Get a New Job?

If you’re able to find a new job quickly, your income could change your bankruptcy eligibility. But that doesn’t mean you’re doomed to a life of debt and its consequences.

If you’re still drowning in debt despite your new income, Chapter 13 bankruptcy might be a better option. Unlike Chapter 7, Chapter 13 sets up a structured repayment plan based on what you can afford.

A lot of people get confused between these two bankruptcy chapters and what they might mean. At your free consultation, we’ll talk with you about which option might be right for you and what to expect.

Choosing the Right Bankruptcy Lawyer After a Layoff

Losing a job is tough, but you don’t have to face financial hardship alone. The courts are on your side, and so are we.

If you’re worried about bills piling up and don’t know what to do next, I’m here to help. Our award-winning Memphis bankruptcy firm will guide you through the process and help you decide how to proceed. If you decide, bankruptcy is the best option, we can help you figure out if Chapter 7 or Chapter 13 is right for you.

A layoff shouldn’t control your future, and neither should your debt. Let us help you figure out a better way forward. Just contact us online to schedule a free consultation or call us at 901-327-2100.