Few things cause stress levels to peak like job loss, especially when it affects your personal finances. The reason is self-evident: when your income is suddenly interrupted, you can’t pay your bills. If you can’t pay your bills, you get into a financial debt situation that can be hard to recover from.

Mortgage, car payments, child care, groceries, utilities, and other day-to-day expenses can add up quickly, so much so that many people in this situation may feel the need to settle their debt through a consumer proposal or bankruptcy. We regularly have people come into our office who are currently unemployed and believe they will never catch up with their debt.

I understand their concern and am happy to answer their questions, but the truth is this is not a period where it is advantageous to declare bankruptcy because of the professional filing fees involved. In most cases, waiting and dealing with your creditors as you start a new job allows for more options without the overall difficulty and stress that can come with a bankruptcy filing.

A better option would be to focus on strategies that will protect your finances during the unemployment period and help you re-enter the workforce.

Protect Your Personal Finances During Unemployment

With no money coming in, your financial picture could become dire. But there are ways you can help stem the tide of debt by taking control of the situation, and keep money coming in to cover basic necessities while you search for new employment:

1. Apply for Employment Insurance: If you were employed by someone else, you have been paying into employment insurance (EI) and are likely entitled to unemployment benefits. Many employers automatically submit your Record of Employment (ROE) to the government, but if not you’ll have to get it from your former employer and visit a Service Canada office to apply for benefits. Start the process as soon as possible to get money coming in. Remember – you’ve been paying into EI so you’re entitled to it.

2. Look into severance pay: If you were laid off or let go without cause, you may be legally entitled to a severance package, also known as termination pay. You can find out what laws apply in your particular province by calling the Ministry of Labour, provincial law society, or a local employment lawyer. Many employment lawyers offer free consultations, and will advocate on your behalf to get as much money as you’re entitled to from your former employer. Also, it’s advisable to not sign any termination agreements until you speak with a lawyer first.

3. Know your budget: This isn’t the time to put fancy dinners on your credit card. Put together a budget to determine how much you actually need to maintain your lifestyle. Every number matters: mortgage/rent, transportation, insurance, minimum payments on bills, and other essentials you need to get by on. Know your budget before the bills overwhelm you.

4. Network: The more Netflix you watch during the day, the further away you’re putting off finding new employment, and the more your debt will accumulate. Start reaching out to your personal and professional networks to source new opportunities that might be a good fit for you.

5. Don’t give up: Most of all, don’t let the situation get the best of you. Rushing to declare bankruptcy, selling all of your assets, and ditching your apartment are not ways to recover. Also, giving up can lead to a whole host of health problems, adding unnecessarily challenges for you to overcome. Being unemployed is very stressful, but you can turn things around by having a positive attitude and being determined to get back on your feet.

You might also consider taking on part-time work while you return to school or start your own business. Look into available programs in your area that can support your efforts to work towards a brighter future.

Although EI and severance packages offer relief during unemployment, they do have limited life spans. Unfortunately though, bills never expire. If you find yourself in an extended period of unemployment, your debt load might be so large that you still find yourself struggling to repay even when you return to work. The good news is that there is a solution that can help.

Debt Consolidation Loans

When you return to the workforce, you’re starting a new chapter in life. But if you’re carrying a large debt load from your period of unemployment, you might not be able to completely turn the page.

In this case, a debt consolidation loan might help. We can match you with a reputable lender who will quickly pay your creditors all at once. You then simply pay your lender back, often at reduced rate of interest than you’re paying now, until the debt is cleared. Your creditors will appreciate being repaid in full, and will be more likely to extend you additional credit in the future.

With a debt consolidation loan, you also protect your credit score, which can be negatively affected by other debt management solutions.

The best scenario would be to have little to no debt by sticking to a budget, but remember that there is always a solution in case you get into financial trouble

Getting Through Job Loss

Remember, there is no shame in being unemployed. It happens to thousands of people, often through no fault of their own. Corporate downsizing, mergers and acquisitions, and job loss to automation are happening more frequently, and an increasingly competitive job market makes the situation even harder.

But with hard work and determination, you’ll make it – and without resorting to bankruptcy unnecessarily. As always, I’m happy to answer any questions about how I can help your particular financial situation.

Robert Charles, B.A., CIRP, Licensed Insolvency Trustee, is the founder of Charles Advisory Services.

For every debt problem, there’s a debt solution. Since 2006, Licensed Insolvency Trustee Robert Charles and his team at Charles Advisory Services have helped individuals, families, and businesses in Toronto move beyond debt towards financial health. Contact us today at 416-915-9007 today for a free consultation.

TIP: Many people set up an emergency fund (also known as a rainy day fund) to help them get by during lean times. You can also dip into your Tax Free Savings Account (TFSA) without penalty if you need quick access to cash. Don’t forget to replenish them once you start working again.

Useful links: Severance Pay Calculator (Ontario and BC)