Why job loss could quickly lead to a bankruptcy filing

On Behalf of | May 13, 2024 | Personal Bankruptcy |

People often commit a large amount of their time to their careers. Professionals may devote far more than the standard 40 hours a week toward their jobs, especially if they work in a highly-skilled or highly-educated role. The better someone’s job is and the more competitive their pay becomes, the harder it may be to replace their job after an unexpected termination. That is especially true in scenarios where companies terminate or lay off multiple employees all at once.

A worker who loses their job unexpectedly may struggle to pay their bills. If they cannot find a new position with comparable pay quickly, they might actually need to file for bankruptcy. There is a strong association between sudden job loss and personal bankruptcy filings. Why does a worker who loses their job potentially need the protection of personal bankruptcy?

Inadequate resources and savings

Despite constant admonishments to save resources for a rainy day, many adults do not have enough income to save consistently. According to a recent review of savings accounts in the United States, the median savings account balance for the average adult is just $8,000. Someone might have enough in savings to pay their mortgage and minimum credit card payments for a month or two. Once those resources run out, they may have to take drastic steps to protect themselves from creditor actions.

Credit-dependent lifestyles

Keeping up with the Joneses becomes more important as people earn higher wages. They need to look professional and have nice clothing if they want to continue to maintain their careers. Those with higher levels of income often carry higher amounts of personal debt. Their credit card balances and other financial obligations could lead to aggressive collection activity if they fall behind on what they owe. Lenders may take someone to court after a few missed payments.

Personal bankruptcy is one of the most effective ways of preventing creditor judgments and addressing the financial hardship that can follow an unexpected job loss. Filing for personal bankruptcy might be the best solution for someone dealing with debt after a loss of employment. A personal bankruptcy can halt collection efforts and discharge certain debts so that people can rebuild after a difficult time.

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