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Can I Quit My Job During Chapter 13 Bankruptcy?

quit job during chapter 13 bankruptcy

Your job is an important source of income, whether you’re in the middle of trying to pay down debt or are trying to file for bankruptcy. Sometimes, however, your job causes more problems than it solves. Can you quit your job while filing for bankruptcy? If you’re struggling to understand your next move, it can be important to answer this key question before moving forward.

Chapter 13, unlike Chapter 7, includes a monthly payment plan.  In order to make money for the payments, most people need a job.  However, the bankruptcy laws have some flexibility.  For example, it is often possible to convert from a Chapter 13 payment plan to a Chapter 7, which is a straight bankruptcy.  It may also be possible to modify your chapter 13 plan to allow for lower payments.

Legal Requirements

Legally speaking, you cannot be required to stay at your job just because you are filing for Chapter 13 bankruptcy. That means that if you find yourself in a situation where you must quit your job–your current situation is unbearable, you need more time for other tasks, or you have found a better job that will start soon–you can choose to leave your current position.

What Does Quitting Your Job Mean for Chapter 13 Bankruptcy?

While you can leave your job while filing for Chapter 13, that does not necessarily mean that it’s a good idea. When you file for bankruptcy, you face a number of challenges. In Chapter 13 bankruptcy, you will set up a payment arrangement that allows you to pay down certain debts. This may include paying down a second mortgage, taking care of car payments, or getting rid of domestic debts that have left you struggling. Generally, this repayment will take place over a 3-5 year period, during which you will have much less trouble making improvements to your credit than you would if you file for Chapter 7 bankruptcy. This offers a number of advantages to many individuals, making it the preferred type of bankruptcy for many.

Chapter 13 Bankruptcy Requires Regular Income

In order to take advantage of Chapter 13 bankruptcy, you need regular income. Since, under Chapter 13 bankruptcy, you will make payments on your debt each month, it is usually considered helpful to have regular income during this time period. Without that income, you may find it difficult to make your payments on time, which could send you spinning right back into higher debt than before.

You May Not Be Approved for Chapter 13 Bankruptcy if You Quit

If you choose to quit your job, are fired from your job, or your position ends (or is set to end) during the bankruptcy process, you may struggle to get approval for Chapter 13 bankruptcy. In order to discharge your debts, you need a certain amount of income coming in–and if you quit your job, you do not have that source of income. As a result, you may struggle to take care of the payments. Since you can’t take care of those payments, you might not be approved.

If this happens, you should talk to your lawyer right away.  You may be able to modify your chapter 13 plan to be lower while you look for a new job, or to convert your chapter 13 into a chapter 7.  Whether these options are available depends on whether you filed another bankruptcy earlier, what your budget is, what types of debt you have, and how the chapter 13 is being used.  For example, if you are using it to catch up on a mortgage, then it doesn’t make much sense to convert to a chapter 7, because the mortgage won’t be caught up yet.

What Should You Do?

Ideally, you should try to keep your job while you’re filing for bankruptcy. If you must quit your job, line up another source of income as soon as possible, and make sure you are prepared to deal with potential ramifications of losing your job during the process. You may need to fill out new paperwork or file for an adjustment to your current payment arrangements in order to balance your debts with your new financial position. If you do lose your job for reasons beyond your control, look for a new source of income as soon as possible. In some cases, you may be able to put bankruptcy proceedings on hold while you seek new employment.

Are you struggling to hold on to your job while filing Chapter 13 bankruptcy? Do you need advice about the bankruptcy process and what it will mean for you? We can help. Contact us today to learn more.


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