Debt threatens the financial security of thousands of Americans as of 2011. For some, the answer to debt problems is to file bankruptcy. Some people who consider bankruptcy as a debt elimination option think about quitting their jobs in order to file. This is not necessary, and in most cases, only creates additional problems.
Why People Quit
In some bankruptcy cases, current monthly income is higher than the median monthly income for a debtor's state. When this happens, courts use a means test to determine whether you are abusing the system. If the debtor fails the means test, courts conclude that the debtor in fact can fulfill his financial obligations and is filing bankruptcy unnecessarily. Some people believe that quitting a job prior to filing bankruptcy will allow them to pass the means test.
Duration of Unemployment
Quitting your job certainly reduces your monthly income. The problem is that the means test usually looks at your income over years, not just a short period of weeks or months. You would need to be unemployed for a long time before the lack of income impacts the result of the means test.
Continued Debt Problems
Although filing bankruptcy may dissolve some of the debt you have, it doesn't necessarily spell an end to your debt issues. You still must pay your bankruptcy attorney, for example, and you'll have everyday living expenses such as rent, food and utilities to meet. If you cannot meet these expenses because you have no job, you may have to rely on credit, loans and other financing to survive, which may dig you another debt hole. Because the goal of filing bankruptcy is a fresh financial start, this is not desirable.
The Bottom Line
The key to any bankruptcy filing is good faith. Courts may find that your filing is an abuse of the system if they determine there was no legitimate reason for a resignation to occur. For this reason, and because of the logistical problems lack of employment after bankruptcy causes, don't quit your job just so you can file.
That said, courts won't dismiss your bankruptcy case simply because you quit your job prior to filing. They will look at all the circumstances surrounding your resignation, as well as how much time has elapsed between the end of your employment and the filing. If they find you've filed in good faith and that you quit your job for a legitimate reason such as an injury or having a baby, they likely will let your case proceed. If possible, provide documentation that shows your resignation and filing aren't related, such as a letters to your HR department that show you were in an unsafe work environment and copies of bill statements that show your financial problems existed well before your resignation.