One of the recurring problems we see in the office lately are individuals waiting until their financial situation improves before investigating their bankruptcy options. This is another situation where doing the "right thing" puts you at a disadvantage under our country's complex bankruptcy laws.
Why? Under the 2005 Bankruptcy reform legislation, debtors are subjected to "means testing" to determine whether they qualify for bankruptcies that involve no or merely-fractional payment of future income to general unsecured creditors via a Chapter 7 or Chapter 13 plan.
An oversimplified example to clarify what we are trying to say is as follows:
1) John D. is an unemployed software engineer in South San Francisco. His last opportunity for unemployment insurance ran out three months ago. He has been searching for permanent employment, and has several good leads for possible job interviews.
2) John D. lives in a rental apartment. He owns no real property, and drives a 2001 Toyota that is paid for.
3) In 2008, John D. made $88,000 a year. During the financial crisis of 2008-2009, he lost his regular job with a financial company, and has been unable to find a good paying, permanent job since then. His income has been up and down, and he has been working on a project basis off and on. His 2011 Tax Returns indicate gross income of $40,000.00.
4) John D. has a $17,000 judgment for a repossessed car recorded against him, and $43,000 of credit card debt once you include the interest and late charges that have accrued. The car lender is threatening to levy his bank account, which has $10,000 of savings.
If John D. files bankruptcy before he secures a job, he would likely make no repayment to unsecured creditors, his bankruptcy would wash away his debts entirely.
However, if John D. secures employment earning $122,500 a year, for example, and files bankruptcy, say, six months later, absent a change in his financial circumstances - he might have to repay his debts in full over five years. The net outcome? Waiting to file could cost John D. up to $60,000, and the lost income opportunities on that $60,000.
It is always best to investigate your bankruptcy options before you secure new employment. If you feel that your job prospects are improving, but that you have unmanageable debt, contact us to today for a free consultation in one of our Bay Area offices.
Note that merely securing employment does not mean you will have to repay all your debts in bankruptcy. Whether debts have to be repaid, and the amount, depends on many factors. Notably, it is far better to file bankruptcy while your secured debts are high, rather than after a repossession or foreclosure. Too complicated? Don't worry, we can simplify it for you at an in-office appointment.
Questions or want to make an appointment? Call us today at:
650.259.9200 Burlingame / S.F. Peninsula
408.520.9301 Campbell / South Bay
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Law Office of Jason Honaker