Personal bankruptcies almost always fall into one of two categories – Chapter 7 and Chapter 13. As I know from having helped write the latest version of Indiana bankruptcy exemption law, these two types are, in a way, like the two sides of the income coin. Simply put, consumers who have income might have the means to repay most or all of their debts over time. Those who don’t have income, either because they can’t work or because they were laid off and haven’t been able to find new employment, obviously can’t repay their debts, and so they file Chapter 7 bankruptcy under which some of their debt can be discharged, or forgiven.
In fact, during the more than twenty years I’ve been a bankruptcy lawyer in Indiana, one of the truly important functions of my work with clients is understanding the ins and outs of the “bankruptcy means test” so that I can advise clients which chapter of bankruptcy is most appropriate given all their circumstances. While some clients have income from veterans’ benefits or other government programs, it’s fair to say that income and jobs are very, very closely related. And while most personal bankruptcies are the result of a combination of factors building up over time, job layoffs are certainly one of the big causes leading to bankruptcy along with medical costs and divorce. The job market itself is changing, and finding new employment can be very challenging, as I wrote in It’s Not Your Daddy’s Job Market.
Some newspaper and magazine articles I’ve been reading lately talk about entrepreneurship in Indiana being up because of job layoffs – the idea being that people lose jobs, then start their own businesses. Needless to say, it’s not that easy; most people who lost jobs don’t have enough money saved up to launch a business, and getting credit is a lot harder these days as well. Sharon O’Donahue, executive director of Business Ownership Initiative of Indiana, interviewed for an Indianapolis Business Journal feature, advises getting creative. “Today, it’s about patchworking income – threading together sources of income that meet household needs.” I know one thing for sure: – clients emerging from bankruptcy will need to be especially creative as they work on rebuilding their financial lives, so the phrase “patchworking income” is likely to become an integral part of my discussions with my Indiana bankruptcy clients.