What To Do When Your Unemployment Checks Stop Coming?

By Tisha Tolar, on April 6, 2011


You’ve learned to live off of your unemployment benefits. You’ve cut your budget and are finally starting to make some progress in the new job market. Right when all seems to be going well, the rules change. It is expected that many more states will start the process of cutting back on the unemployment benefits they are issuing to their unemployed residents.
The bottom line is many states are broke. Cutting back on unemployment helps solve a portion of this immediate financial problem. In addition to saving a state budget funds, the cuts are being considered because of the unemployment taxes companies have to pay. The hope is that if business taxes can be decreased, more companies would begin to hire new employees.
Changes Are Coming

States across the nation are inundated with claims for unemployment benefits since the recession came about. Employers were quick to downsize to keep the company afloat, leaving many in the lurch without reliable income or the prospects of finding a new job immediately. The unemployment trust funds set up in each state took a serious beating, prompting some to take a loan from the federal government in order to meet the demand for covering eligible benefit distributions to those without jobs.

The states of Florida and Arkansas are currently looking at reducing the number of weeks unemployed workers can receive benefits. Florida’s legislature has proposed cutting the benefit receipt time by 6 weeks. Indiana has been working to reduce the number of jobless that are eligible to receive benefits in the first place. Govenor of Indiana Mitch Daniels recently signed into law a bill that limits eligibility for unemployment benefits. The law also changes the way payments are calculated and these changes will start in July 2012. There are a total of 32 states which still owe monies back to a federal unemployment fund. For now, the total owed is estimated at $45.7 billion and states are expected to repay about $1.4 billion back in interest.

This is not the first time states have had to borrow federal funds and make cuts to unemployment benefits. It happened in the 1980s when a recession forced states to borrow $28 billion to meet the unemployment benefits needs for laid-off workers. During that time 40 of the 50 states made changes to the way money was distributed for unemployment, even going as far as changing up the eligibility guidelines for workers.

How to Prepare for Benefit Cuts

Above all you need to get off unemployment benefits. Even with multiple Congressional extensions they will eventually run out. Aside from that, the best thing you can do now if you are worried about cuts and changes to your unemployment benefits is be proactive about learning the facts. Follow the news in your state about the impending changes on benefits guidelines so you know what to expect.

You should also look at the big picture and work to save enough cash as you can while you look for work. It may not be easy to get by even with the benefits you are now receiving, but planning budget cuts of your own is a good start.

Brush up on old skills or learn new ones as you continue to look for a new job. There are often community accessible courses where you can learn new skills and improve your existing knowledge. Many of the unemployment departments in your state will either already require some job polishing efforts by recipients and often have resources available for free that can help spice up your resume. You will also be able to find opportunities to seek work through the unemployment office in your state.

Most changes will not be immediate but it is important to plan for the inevitable, especially if you have gone a while without securing a new source of income.

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You're eligible for Chapter 7 bankruptcy, but should you file?

Dear Opening Credits,


My husband and I have accumulated a lot of credit card debt, due to his layoff from a good job and extended unemployment/underemployment. We consulted with an attorney, and it looks like we can do Chapter 7 bankruptcy. We're trying to look at other options, but we're not sure what are legitimate and what are not. Also, we have a lot of pause about a bankruptcy and its effects on our lives for the next 10 years. I'm also concerned about a bad credit report. (Our credit was very good before all this happened.) Thank you. -- Laura

Dear Laura,

Are you familiar with the snappy little adage, "Just because you can doesn't mean you should"? It applies well to bankruptcy. Many people are able to file, but a good portion would actually be better off taking a different course of action. While your attorney said it is a viable option for you, you're right to question whether the legal route is the best road to travel. The person you spoke with likely didn't cover the myriad ways to deal with the debt.

Chapter 7 bankruptcy has equal parts wonderful upsides and rotten downsides. Indeed, it can be a great way to jump-start a new financial beginning. With it, you can walk away from those credit card balances -- well, at least those that weren't incurred for high-dollar cash advances or luxury goods within 60 to 90 days of filing. Those types of purchases might draw the creditor's attention, prompting them to ask that those debts not get discharged.

You don't say how much you owe, but I'll assume it's so much that you're struggling to meet your payments. If you've been late a few times, the interest rates on those accounts will have soared. They could be so high that nearly all of your minimum payment is going toward finance charges. Therefore, each month is the same: You struggle, scrape up as much cash as you can, neglect and even fall behind on vital expenses but get nowhere with that balance.

It seems like a horrible waste, doesn't it? Just think about how you would feel if you could get rid of that debt in bankruptcy. You would be able to use that money you were sending your creditors to pay for living expenses and non-dischargeable bills, and you might even be able to add some into a savings account. That's what people mean when they say it's a fresh start.

Before you get the wrong idea that I'm pushing you toward bankruptcy, know that I am not. If your husband will likely be working again within the next year, I would far prefer that you go on a creditor's hardship plan (assuming it was open to you) where you ask that they suspend payments and maybe even interest and fees for a while. When paychecks start flowing in again, you can get back on track. The fact is, you borrowed that money and ought to repay it if you can.

Other downsides to consider: The bankruptcy notation will remain on your credit report for a total of 10 years. That's a long time for such a black mark to follow you. Back when I was counseling, I used to have my clients picture themselves 10 years older, so a 37-year-old would have to envision herself at 47. Look at it in that kind of mirror and the gravity of a decade is apparent. As for your score, bankruptcy will take it down from where it is now to the very bottom, and it will languish there for a while. Regarding future job prospects, employers aren't privy to your score, but they can see your report --- and thus the bankruptcy. While they are not permitted to discriminate against job applicants who've filed, such a allegation would be virtually impossible for you to prove.

More, if you wanted to finance something during this time -- be it a home, car or new TV -- you would probably be charged a dreadfully high rate of interest. Have valuable property? You may have to give some of it up.

To really help you decide, please visit an accredited credit counseling agency. They will be able to give you a thorough rundown on all of your options, and that may or may not include bankruptcy. For example, a debt management plan could work well for you. Contrary to popular lore, repaying debt on such a program typically boosts a credit rating because it enables participants to resume steady payments.

So should you file, Laura? Perhaps, but only after exploring all other options first.


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