How Unemployment Can Lead to Bankruptcy

About 6.2 million Americans were out of work in February 2020. As the COVID-19 pandemic hit the United States and the economy shut down, unemployment rates soared, and at least 20.5 million people were out of work. Some people were temporarily furloughed, while others lost their jobs permanently. Many business owners watched as their companies went under, and many people are still struggling with the effects of unemployment.

Pandemic or not, there are many reasons why people might find themselves unemployed, including:

• Illness or injury
• Business cutbacks and layoffs
• Disagreements with a boss
• Childcare issues
• Failure of a business venture

Whatever the reason might be, it can be difficult to find new work that pays as much as you were making before. This can cause serious problems in a matter of weeks.

The Financial Effects of Losing Your Job

Learning that you’ve lost your job can be devastating. If you are a primary earner for your household, the sudden loss of that income can cause immediate problems for your family. Many people have emergency savings, but not enough to cover their expenses for weeks or months. Others have little to no savings at all. Unemployment benefits are limited, and the situation can get concerning very quickly.

You might not have the funds to cover your housing expenses, utilities, and other bills. While you prioritize putting food on the table, you can get far behind on your bills faster than you expect. In this situation, many people use credit cards to pay bills and other expenses, assuming they will then pay off the credit cards once they find work. However, credit card balances can pile high before you know it, and with interest rates, it can be hard to make any progress. 

Unemployment can cause debts to become overdue, including:

• Rent and utilities
• Credit cards
• Personal loans
• Medical bills
• Auto loans
• Student loans
• Mortgages

Credit balances and other debts can haunt you long after you find work again, and many people don’t know how they will ever get ahead after a period of unemployment. Chapter 7 bankruptcy is often a solution to relieve you from unsecured debts like credit cards and personal loans. While Chapter 7 can’t get rid of your mortgage or car payments, it can free up cash, so you have more money to pay those leftover debts. Bankruptcy can help you overcome the struggles of unemployment and move forward with your life. 

Contact a Rochester Bankruptcy Lawyer Right Away for Help

Unemployment can happen for many reasons, and the effects can be difficult for your family. Always remember that there are options if you believe your debt has gotten out of control. The law firm of Karen E. Evangelista, PC, regularly works with clients who have lost their jobs and need help getting back on top of their financial situation. We can tell you about all of your options, including whether bankruptcy might be the right answer for you. Contact us for more information today.