With the shutdown of the United States government going into its third week, we read stories about how “non-essential” employees are being furloughed. That’s something well known to state and county employees here in California who have had mandatory furlough days for a while now. What this means is, you don’t come to work and don’t get paid for furlough days.

I suppose furloughs aren’t as bad as a flat out job loss, since you are either receiving some income (in the case of California workers) or will likely return to work soon (as in the case of the federal workers….we hope). But they can be a trigger to bankruptcy.

Many of my clients live “paycheck to paycheck”. With soaring living costs (food, gasoline, clothing, utilities, etc.) losing even one work day per week to a person who is already scraping to pay $800 per month minimum on their credit cards, can cause a cascade of problems.

What Triggers The Need To File Bankruptcy?

There’s always a straw that breaks the camel’s back that leads people to my office. Reduction in income is certainly a common one, but there are many others I see, often in combination with others.

These include the following

Unexpected increase in expenses (such as medical, or increase in adjustable mortgage interest rates

Domestic Problems (divorce can be expensive, and losing a partner’s income can definitely cause problems)

Don’t Make the Mistake of Charging More Now!

Once you realize that you can’t afford to pay your debts, what you do from this point can be very important in terms of your future ability to eliminate your debts in a bankruptcy case. Why? Because a drop in income is a perfectly valid and sound reason for defaulting on debt payments and needing bankruptcy protection.

However, the mistake many make when their income drops is to borrow even more money so their credit stays “good” in the hopes things will improve quickly. While this has some intuitive appeal, it’s not very strong reasoning unless you’ve done the math and know that your income will return to a place where you’re able to make the necessary payments to catch everything up at some point. Trust me: I’ve been handling bankruptcy cases for over 20 years and regularly see people who have over $100,000 in unsecured, credit card-type debts. When I ask how much the debt was before their income changed, it is usually less than half that amount.

It may seem premature, but this is a good time to enlist the advice of a bankruptcy attorney to see if it is a good option for you. There are many variables to consider, but the biggest mistake people make is waiting too long to explore their options.

How Do you Respond?

Many people stick their heads in the sand when faced with harsh financial realities until they’re absolutely forced to take action. It’s better to evaluate all the options and make an informed decision on how to proceed. It may very well be that you want to wait it out. That makes sense in some situations. And I’m not saying you should run to file bankruptcy the moment hardship strikes. But you should LEARN about bankruptcy and what it can do before deciding which path to take. Sometimes there is a small window of opportunity in which you “qualify” for filing a particular chapter of bankruptcy, so timing can be important. But many factors must be analyzed.

As usual, the first step is scheduling an appointment with a qualified bankruptcy attorney in your area.