Expert Analysis: How Trump’s Union and Tariff Actions Fuel Bankruptcy

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on November 7, 2025.

Connecting Global Chaos to Your Checking Account

If you follow my blog and videos, you know my focus is always on personal finance, debt avoidance, and the bankruptcy process, the issues that impact your life directly. Today, however, we’re taking a different angle, and that’s understanding how the role of politics affects our personal finances.

There are two major policy events this article will focus on: the administration’s actions targeting federal employee unions and the new tariffs on Canada and Mexico, and explaining how they translate into financial instability that could lead to an increase in debt.

The news of the day translates to political chaos leads to financial chaos.

Listen: The Professor’s Audio Briefing.

Legal and Financial Instability: The Attack on Federal Union Contracts

The Trump administration has issued an executive order aimed at unilaterally voiding contracts for thousands of federal workers, often citing national security concerns, even for agencies like the Department of Veterans Affairs (VA), the Environmental Protection Agency (EPA), and the Department of the Treasury.

The Bankruptcy Risk for the Federal Worker

The Immediate Financial Threat: Federal employee unions, unlike their private-sector counterparts, primarily bargain over working conditions and disciplinary procedures, not wages. The union contracts being voided often contain critical protections, such as defined Performance Improvement Periods (PIPs) of 60 to 120 days. The administration is now moving to reduce these protections to 30 days or less.

Consequence: When an employer can quickly terminate a worker over performance or policy disputes, it creates a massive spike in job insecurity, not to mention employee morale.For the average person, sudden job loss is a trigger for a Chapter 7 or Chapter 13 bankruptcy filing.

The legal battle over these contracts (which unions are fighting in court, arguing the order is arbitrary and capricious under the Administrative Procedure Act) creates financial uncertainty for over a million workers and their families.

Professor’s Insight: From a consumer bankruptcy standpoint, any policy that increases job termination risk for a large population is a direct threat to an increase in debt and bankruptcy. This chaos increases the probability of a client walking into a bankruptcy lawyer’s office next month, not because they bought a Rolex and are living above their means, but because they lost their secure, middle-class federal income.

The Hidden Cost of Tariffs: Affecting Your Mortgage and Car Payment

The Trump administration has imposed or threatened tariffs of up to 25% on goods from major trading partners like Canada and Mexico. As I have discussed in my videos, the effect of these tariffs is never contained to foreign governments; it is a tax paid by American consumers that directly contributes to financial distress.

The Bankruptcy Risk for the Homeowner and Car Owner

Impact on Housing (A Core Bankruptcy Asset): The U.S. relies on Canada for a significant portion of its softwood lumber supply. The combination of new tariffs and existing duties could push the tariff rate on Canadian lumber to over 50%.

Consequence: This directly increases the cost of new construction, adding an estimated $7,500 to $10,000 to the price of an average new single-family home. For homeowners in states like Florida or California (two of the high-search areas on my blog), this spike in construction costs drives up the value of surrounding properties and, more dangerously, the cost of repair and renovation.

Cost overruns on a simple repair job can instantly trigger the need to use credit cards, which is a common path to Chapter 7.

Impact on Transportation (The Auto Loan Crisis): Tariffs on auto parts and vehicles from Mexico and Canada affect the U.S. supply chain.

Consequence: Analysts estimate these tariffs could raise the price of a new vehicle by up to $3,000, with some estimates $9,000. Given that high auto loan payments are a major driver of Chapter 13 filings (which restructures secured debt and may sometimes even reduce the loan balance), any action that inflates the cost of a car increases the debt load you must carry, making you more vulnerable to bankruptcy in the event of job loss or medical emergency.

To learn more about reducing a car loan balance in a Chapter 13 cramdown, read this prior article.

Conclusion: Financial Preparedness in an Era of Political Instability

Today’s news, though seemingly political, highlights the economic risk created by uncertainty. Instead of focusing on why a politician did what they did, focus on what it means for your personal economy: higher material costs, greater job instability, and an increased risk of medical debt (as employers seek to cut benefit costs).

Increase your emergency fund. Political and financial chaos require preparation.

1. Review your job contract/manual if you are a federal worker, and understand your current appeal rights.
2. Analyze your debt load, particularly your auto and mortgage payments, against your income. If the margin is thin, you are exposed and need to work on reducing your expenses and debt.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

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