Timing when to file bankruptcy – particularly around a period of unemployment or changed employment status – can be tricky, and it really depends on what your goals are.
Let me give you a couple examples…
Let’s say you’re single person making $30,000 a year, struggling with credit card debt, and worried about wage garnishments. If you suddenly lose your job, there’s no real reason to rush to file for bankruptcy while unemployed. While unemployed, you’re essentially garnishment-proof (you don’t have any wages to have garnished). In Wisconsin, if you qualify for state aid (BadgerCare or food stamps), you can protect yourself from wage garnishment for at least six months after you return to work – giving you ample time to get a bankruptcy case prepared and filed before the garnishment can kick back in.
Let’s take the same example, but instead of making $30,000 a year, you’re making $50,000 a year. You’re still struggling with debt (remember that insolvency is not JUST about your income, but your debt to income ratio). But because of your income, you’d be looking at a Chapter 13. If you know that your job is in jeopardy (e.g. your company is going through a series of lay-offs), there may be a strategic advantage to waiting to file until you’ve lost your job and can qualify under Chapter 7. This is something you’d consider if there were no other benefits that a Chapter 13 could confer upon you, and the likelihood of job loss was high and the likelihood of finding new employment soon after was low.
Now let’s say that you’re currently unemployed, and because of this, you have defaulted on your mortgage. You really want to keep your house, and you think you’ll be employed again soon. In this case, you’d need to wait until you found employment so that you can fund the Chapter 13 plan that would stop the foreclosure action and get you caught up on the mortgage arrears.
These are all over-simplified examples. Even if you think one of these three describes you perfectly, there are all sorts of nuanced details that could change an attorney’s recommendation or advice. The point is to make sure that you communicate your goals and wishes clearly with your attorney, and that you not only discuss your current employment status, but also any expected changes in employment status in the immediate future.