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Filing for Bankruptcy During the Federal Shutdown: What You Should Know

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Federal defense worker Rob Merritt was barely making ends meet when President Barack Obama and Congress reached an impasse, forcing many federal departments to come to a halt.

As soon as the shutdown began, visitors to national parks were turned away and U.S. residents found doors shuttered to other federal services. In many departments, large numbers of federal employees were furloughed, leaving those who remained poorly equipped to properly serve members of the public.

For example, the National Labor Relations Board furloughed 1,600 employees, leaving 11 workers in place. The Internal Revenue Service, which employs 94,516 workers, dropped to just 8,752 workers.

Even worse, the U.S. Department of Housing and Urban Development, which subsidizes housing costs for the nation's poor, slashed 8,360 employees from its normal rank of 8,709.

Some federally furloughed employees, some of whom have to continue to work without pay, are now like Merritt, financially vulnerable.

Merritt, who earns $80,000 annually, was already borrowing money using his credit cards to support his wife and four children. He accumulated an insurmountable amount of debt when he underwent heart surgery in April. His wife was in the process of changing careers but had to stop interviewing to help take care of her husband.

If Merritt had been furloughed - like tens of thousands of other federal workers - he would be filing for bankruptcy right now. He's one of the luckier federal employees. Although his check will be delayed, he will eventually receive one - unlike furloughed employees who aren't working and won't ever be able to recoup the lost income.

Is Now a Bad Time to File for Bankruptcy?

Whether you work for the federal government or not, chances are you can relate to workers like Merritt, who is financially vulnerable. No one likes to file for bankruptcy, however, bankruptcy can provide the relief you need from creditors and relief from the weight of debt in your financial life. In addition, the U.S. federal courts aren't affected by the federal government shutdown so you don't have to worry about your case stalling in court.

Chapter 7 vs. Chapter 13

People often believe that if they file for bankruptcy, they will lose their family home and any possibility of owning a home in the future. This isn't true.

Very briefly, here's an explanation of your two options in Bankruptcy Court:

Chapter 7 can be a way to eliminate unsecured debt. It will allow you to liquidate all of your debts except for: (The below list is not designed to be all inclusive)

  • Spousal and child support.
  • Debts you might have accrued through fraudulent actions.
  • Criminal penalties that you owe.
  • Certain taxes.
  • Student Loans

Chapter 13 allows debtors to reorganize unwanted debt and restore financial balance to their lives. If you do not qualify for Chapter 7 or you want to protect certain properties and assets, such as your family home, Chapter 13 may be a better solution for you.

As part of your Chapter 13 bankruptcy, you will receive a long-term payment plan of three to five years, depending on the size of your debt. Once the plan is agreed to, you won't be able to deviate from it unless you undergo a major change in circumstances, such as a job loss or a serious illness.

If you need immediate debt relief, contact our lawyer by calling us at 707-623-1875 to schedule a free consultation. You can also fill out our online submission form. We offer flexible scheduling arrangements and accept all major credit cards.

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