The latest data from 2022 suggests that the unemployment rate in New Jersey is reaching pre-pandemic levels. After a high of 9.4% in 2020 during the height of the pandemic, more NJ workers are employed now than over the last three years. But this data doesn't show the full story of the ways in which the health crisis has impacted NJ workers over the previous few years. While unemployment is down, many NJ workers are still grappling with the effects of unemployment and income loss during and after the pandemic. As the results of these major events begin to impact NJ workers' long-term finances, more people are beginning to file for bankruptcy in NJ.
Job Loss Recovery
Experts estimate that it can take 2-5 years to fully financially recover from job loss. Even if you were only unemployed for a few weeks, the financial damage could take years to repair. Most Americans are not prepared for unexpected job loss. While it is suggested to have at minimum six months of expenses saved up, only 27% of Americans actually do. For the other 73%, job loss can be financially devastating. Without savings to fall back on, these individuals often take on debt to keep themselves afloat financially. Personal loans and credit cards can see you through for a while. But long-term unemployment can severely impact your ability to remain on time and current on all of your financial obligations.
It is easy for debt accrued while unemployed to snowball into an untenable financial situation. Especially if you are dealing with high-interest rates on credit cards or personal loans, your debt can quickly become unmanageable. Even when you regain employment, the debt damage done during your time unemployed may be more than your new salary can keep up with. When this happens, foreclosure, repossession, and other heavy financial consequences likely aren't too far behind. There are simply some financial holes that are too difficult to dig out of alone.
One thing that is not reflected in the unemployment rate numbers for New Jersey is income loss. While unemployment is down and the average income across New Jersey has increased yearly for the last several years, it is worth examining how this income compares to the cost of living. The skyrocketing inflation of the previous year has severely limited the buying power of NJ workers and families. So even if income rates are generally increasing, this rate of increase is not enough to cover the rise in the cost of living due to the rapid inflation that occurred in 2022 and 2023.
New Jersey workers should also consider the financial wiggle room pandemic stimulus programs provided. During the pandemic, many NJ workers enjoyed the additional income of stimulus payments. This money was a lifeline for so many Americans who were experiencing unemployment or income loss. In addition, many families enjoyed the benefits of monthly Child Tax Credit payments. The pause on student loan payments also shifted more money into the pockets of workers in New Jersey and across the nation.
Now that most of these stimulus/assistance programs have ended, Americans need to recalculate their budget to include the loss of this additional income. It is easy to adjust your budget to take advantage of an increase in income without even noticing it. But it is much harder to accommodate your budget to account for a loss of income. If you cannot adjust quickly enough, it is possible to dig yourself into a deep hole of debt and missed payments.
Unemployment and Bankruptcy
Bankruptcy is a powerful financial tool meant to help those who cannot pay their debts. If you find yourself constantly stressed about your finances, barely managing to pay your bills, or at risk of losing your possessions due to missed payments, bankruptcy might be the right option for you. Filing for bankruptcy while unemployed is very similar to filing for bankruptcy while holding down a job but with a few differences.
If you do not have any income—or don't make much money while employed—you will likely be a good candidate for Chapter 7 bankruptcy. Because Chapter 13 requires a repayment plan, those with little or no income will probably not meet the income requirements to pay back debt under the repayment plans. Chapter 7 bankruptcy can help low or no-income folks discharge qualifying debt within a time frame of about four months. Similarly, most people receiving unemployment benefits will also apply for Chapter 7 bankruptcy. However, it is possible to qualify for Chapter 13 in some cases. If you are receiving unemployment benefits, you have six months from the date of job loss to file for bankruptcy.
Keep in mind that changes in your employment status can affect your eligibility for Chapter 7 bankruptcy in New Jersey. To qualify for Chapter 7 bankruptcy, you must pass the bankruptcy means test. This test will compare your income with the average income in your state. For New Jersey, that is $39,814.00. You will qualify to file for Chapter 7 bankruptcy in New Jersey if you make less than this amount. However, if you have only recently lost your job or income, it may be challenging to qualify for Chapter 7 bankruptcy at first. If your previous income was much higher than the state average, it might take some time for you to be eligible for Chapter 7 bankruptcy.
On the other hand, obtaining gainful employment during your bankruptcy case could affect your qualifications for the means test. The bankruptcy trustee will compel you to disclose this new employment and determine whether you are eligible for Chapter 7 bankruptcy. If you are not, you may need to change to Chapter 13 bankruptcy.
How Can Chapter 7 Bankruptcy Help Me?
When you have no money or little income, bankruptcy can help you wipe out qualifying unsecured debts to reduce your monthly expenses and allow you to get back on your feet financially. These unsecured debts include credit cards, past-due utility payments or rent, and medical bills. Chapter 7 is, simply put: the liquidation of assets to pay back creditors. Still, filers will have the option to exempt specific property to help them maintain their home and essential personal possessions. Nonexempt property—like a second car or luxury items—can be sold. However, this rarely happens for filers with no or low income, as they have likely already sold these items to make payments.
Veitengruber Law has helped many people in filing for bankruptcy. Now that we are three years out from the start of the 2020 pandemic, the long-term effects of job loss, income loss, and debt struggles are coming into orbit for so many Americans. We understand how stressful job and/or income loss can be. We aim to provide compassionate support to help you move forward on better financial footing. Contact us today to see if bankruptcy is the right path for you!