Risks Of Quitting Job To File Bankruptcy

2019/02/25

People overwhelmed with debt, often consider filing bankruptcy under chapter 7 as the best option for eliminating their debt burden. A bankruptcy court declares a person bankrupt only if it is satisfied that the current income of the petitioner is not enough to meet the debt payments. To meet this specific criterion of the bankruptcy law, sometimes debtors consider quitting their jobs before filing bankruptcy.

According to bankruptcy experts, quitting a job before filing bankruptcy might not resolve your financial problems. Instead, it might further worsen your financial woes.

To determine the financial condition of the debtor who has filed a bankruptcy petition, the bankruptcy court calculates the income of the petitioner. Your income is compared with the income of a household of similar size in your state. The median income varies from state to state. For a four-member family, it usually ranges between $103,361 in Maryland and $53,709 in New Mexico.

If your income is below the median income of your state, you can easily qualify for bankruptcy. However, if your income is above the median income of your state, the bankruptcy court might presume that you are abusing the system. In such as case, a more complicated calculation, known as mean test, will be carried out to determine whether you are incapable of clearing your dues or whether you are abusing the bankruptcy system.

Quit Your Job Before Filing Bankruptcy Under Chapter 7

Willfully quit your job before filing bankruptcy under chapter 7 might not help you to pass the mean test. Your monthly income will plummet the moment you leave your job, but your income at the time of filing the bankruptcy petition is not the sole basis for passing the means test. To prevent misuse of the bankruptcy law, the bankruptcy court takes into account the income over the preceding years. Remaining unemployed for a few weeks or even for a few months might not help you to pass the means test.

Risks Of Quitting Job To File Bankruptcy

The court might reject your bankruptcy petition if it believes that there was no legitimate reason for quitting the job. If the court is convinced that you left your job for the sake of filing a bankruptcy petition under chapter 7, your petition will be rejected. In such as case, absence of regular income will increase your financial problems. Besides the mounting debt burden, without a steady income you would fail to meet your daily expenses. However, if you can convince the judge that there was a legitimate reason for your resignation and you have filed the bankruptcy petition in good faith, the court might accept your petition.

To meet your expenses you need a regular income. By filing bankruptcy, you can protect yourself from your creditors, but it could not offer a solution to your financial difficulties. If you left your job before filing the bankruptcy petition, you might face fresh obstacles while applying for jobs. Employers tend to believe that a bankrupt person is financially irresponsible, and are therefore often reluctant to employ them. If you are regular wage earner, instead of quitting your job to file bankruptcy under chapter 7, filing bankruptcy under chapter 13 could be a safer option.

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