An enormous problem in today’s economy in the United States is underemployment. And it appears that this will be the new generation of chapter 7 debtors. In fact, recently I have seen more and more clients who are underemployed seek chapter 7 relief in Minneapolis and the Twin Cities Metro Area.
There are so many people who are working full time and barely making a living. Following is an hypothetical profile of an underemployed debtor. My hypothetical debtor is in her late 20s. She works full time and is paid eleven dollars an hour. She lives alone and is supporting herself but just barely. Her average net pay is just over 1400 per month and on this wage she pays for rent and utilities (approx. 750; cell phone $45; car and renters insurance 85; car payment 225; gas and repairs 95; food 175; entertainment $20; health $20 = $1415) She is breaking even and living very frugally. She obtains a credit card and never uses it, but keeps it in case of emergency. Then, one day her car breaks down. The mechanic needs $2500 to repair her car. She uses her credit card to pay for the repair, because she has no savings. Now she has a minimum payment of $125 every month which means that she must use the card to pay for gas or groceries or both. Now that she has to use the credit card for the bare necessities of life, she is more inclined to use it here and there for items she does not really need.
A debtor in this category is likely to max out earlier than debtors with higher incomes. Often I will meet a potential client who is underemployed come to me overwhelmed when they have only 7-12K in debt. Generally these debtors are very ashamed to come and ask for my help to file a chapter 7. They are proud of their work, grateful to have a job and very independently minded.
Recently I am seeing more and more chapter 7 debtors in the Minneapolis and Saint Paul area who are fitting this profile. For these people, chapter 7 relief is a last resort , but often the most effective road to financial recovery.
This law firm is a debt relief agency, and we help people file for bankruptcy relief under the United States Bankruptcy Law.