What Happens if You Lose Your Job During Bankruptcy?

Losing your job at any point is stressful, but losing it during bankruptcy can feel overwhelming. You might wonder if your case will be dismissed, if your debts will still be discharged, or how you’ll make ends meet in the meantime. The good news is that job loss doesn’t necessarily mean your bankruptcy case is doomed, but it can have different implications depending on the type of bankruptcy you’ve filed.

At Logan A. Weinkauf, P.C. , we work with Massachusetts residents facing financial instability from every angle, including unexpected changes in employment. If you’ve lost your job while in the middle of bankruptcy, we’re here to help you understand your options and protect your financial future.

Understanding the Two Main Types of Bankruptcy

Before exploring how job loss affects bankruptcy, it’s essential to understand the difference between Chapter 7 and Chapter 13 , the two most common forms of consumer bankruptcy.

• Chapter 7 Bankruptcy (also called liquidation bankruptcy) eliminates most unsecured debts, such as credit card bills and medical debt, in just a few months. To qualify, you must pass a means test based on your income and expenses.
• Chapter 13 Bankruptcy involves creating a three—to five-year repayment plan to pay back a portion of debts. It’s often used by individuals with regular incomes who want to catch up on mortgage arrears, car payments, or tax debt while protecting their property.

Each type of bankruptcy responds differently to changes in income, especially a sudden loss of employment.

What Happens if You Lose Your Job During Chapter 7 Bankruptcy?

If you lose your job during a Chapter 7 case, it usually won’t stop the process or result in a dismissal. In fact, your loss of income might make you more eligible to complete your case and obtain a discharge.

Here’s what typically happens:

• Means Test Considerations: If you lost your job before filing and now fall below the median income for your household size in Massachusetts, you may now pass the means test more efficiently
• Asset Protection : If your job loss means you’re worried about losing a car, home, or other assets, your attorney may adjust your exemption strategy to better protect your property.
• Trustee Review: The bankruptcy trustee may ask for updated income information, especially if your case is still being reviewed. Be prepared to provide recent pay stubs, severance details, or unemployment benefit documentation.

In most cases, job loss won’t negatively affect a Chapter 7 filing, and in some situations, it may even strengthen your claim for debt relief.

What Happens if You Lose Your Job During Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a different story. Because your repayment plan is based on your monthly income, losing your job can have a significant impact on your ability to stick to the plan.

But it’s not the end of the road. If you lose your job during a Chapter 13 case, you may have several options:

Modify the Repayment Plan

You can petition the court to modify your plan based on your new financial situation. The court may lower your payments or temporarily suspend them.

Request a Hardship Discharge

If you’ve made payments for a significant period but can no longer afford to continue, you might qualify for a hardship discharge. This is a limited discharge of debts granted under certain circumstances, such as permanent job loss or disability.

Convert to Chapter 7

If your financial circumstances have changed drastically, you may be eligible to convert your Chapter 13 case to Chapter 7, allowing you to eliminate most unsecured debts without a repayment plan. However, this may involve reevaluating asset protections, especially for high-value property.

Dismiss and Refile Later

If none of the above options are feasible, you may choose to dismiss the case and refile once your situation stabilizes. Your attorney can help you weigh the risks and benefits of this approach, including how it may impact creditor actions.

Should You Notify the Bankruptcy Court or Trustee?

Yes. It’s essential to notify your bankruptcy attorney and the trustee as soon as you lose your job. Concealing changes in your income or financial situation can result in case complications or even dismissal.

Transparency allows your attorney to take appropriate legal steps, whether that means modifying your repayment plan or exploring alternative bankruptcy options. The bankruptcy process is designed to accommodate life changes, but only if they’re adequately disclosed.

How Logan A. Weinkauf, P.C. Can Help

At Logan A. Weinkauf, P.C., we understand that financial challenges don’t follow a schedule. Losing your job during bankruptcy can feel devastating, but with the right legal guidance, you can still protect your assets, get the debt relief you need, and move forward with your life.

Bankruptcy is meant to provide a fresh start, not add more stress. Let our team guide you through the process with clarity, compassion, and a strategy tailored to your unique situation. Contact us today for a free consultation.

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