Bankruptcy may help those struggling with the problem of underemployment

In recent years, if politicians and economists are to be believed, the economy has been improving. As a result, more people who lost their jobs during the recession are returning to work. This may be seen as a positive thing, but the news lately has been riddled with stories of underemployment. This phenomenon often occurs when a previously unemployed person is forced to take a job that pays significantly less than his or her previous position. In addition, it can occur in jobs that fail to provide a living wage or health insurance.

Although the individual is technically employed, those that are underemployed still struggle with financial problems. In many cases, these financial problems began when the individual was unemployed. Faced with little or no income, many people turn to credit cards to meet their expenses during this time, racking up significant high-interest debt in the process.

Once individuals return to work, ironically, the problem may get worse. During this time, creditors may seek to garnish wages or bank accounts, since there is now a regular income. As a result, the underemployed individual's meager income becomes even less sufficient to cover the costs of day-to-day life.

Bankruptcy may be a solution

For people in this situation, bankruptcy can offer a solution, regardless of whether Chapter 7 or Chapter 13 is filed.

Chapter 7 bankruptcy is best for underemployed individuals that have an income that is insufficient to repay their prior debts, but is sufficient to keep up with necessities, such as a car or house. As Chapter 7 involves liquidation of assets, the process frightens many people, because they think that they will lose everything. In reality, as long as the individual can keep up with the mortgage or car payments, he or she will not lose either asset. Additionally, many important personal assets like furniture, clothing and other household items are exempt from sale by law. As a result, most Chapter 7 filers lose nothing. Once the Chapter 7 process is complete (in as little as three months), most unsecured debts, such as credit card bills or medical debts, are discharged.

Chapter 13 bankruptcy is ideal for underemployed individuals that are facing foreclosure or repossession of their car because they fell behind on their payments during the period that they were unemployed. Chapter 13 consolidates the individual's debts into a payment plan. Pursuant to the plan, the individual makes monthly payments towards the debts (in full or partially) over a three to five-year period. The payments are kept affordable, as they are calculated based on the individual's income. Once the repayment period has been completed, the individual emerges current on his or her mortgage or car loan and free of most unsecured debt.

An attorney can help

If you have recently become unemployed or are suffering from the effects of underemployment, it is wise to consult with an experienced bankruptcy attorney. An attorney can consider your situation and elaborate further on how bankruptcy can help you get back on track financially.