The federal government shutdown that began on October 1, 2025 has already rippled across California. For many families, federal employees, and small business owners, paychecks are on hold, contracts are frozen, and planning for the next few weeks feels nearly impossible.
As a Board-Certified Bankruptcy Specialist and Chapter 7 Trustee, Larry Simons of Janus Law has seen firsthand how sudden income disruptions can create financial stress. The good news: there are practical, immediate steps you can take to stay in control, protect your credit, and avoid lasting damage, whether or not the shutdown ends soon.
What’s Happening Right Now
Congress failed to pass a new federal budget for 2026, triggering a partial government shutdown. Here’s how that’s playing out:
- Federal workers: About 150,000 Californians employed by federal agencies are furloughed or working without pay. Some may qualify for unemployment benefits through California’s Employment Development Department (EDD).
- IRS operations: Nearly 34,000 IRS employees have been furloughed, meaning delays for tax processing, refunds, and responses.
- Air travel & safety: Staffing shortages among air traffic controllers and TSA agents are causing flight delays and safety concerns at California airports.
- Real estate: Home sales in flood-prone areas are slowing because the National Flood Insurance Program can’t issue or renew certain policies.
- Social Security & Medicare: Payments continue, but new claims and cost-of-living adjustments are delayed.
- Federal contractors: Private companies working on government-funded projects or contracts are seeing stalled payments and halted work.
If the shutdown extends deep into November, as many analysts predict, it could last into the new year, keeping families and small businesses in limbo.
What This Means for Californians
California’s economy depends heavily on federal employment, defense, and research funding. When those streams pause, the ripple effect reaches:
- Government workers and their families missing paychecks.
- Small businesses supplying goods or services to federal offices.
- Contractors waiting for payment on approved projects.
- Consumers holding back spending due to uncertainty.
Bankruptcy Attorney Larry Simons says he’s already heard from government employees unsure whether to use credit cards or dip into savings to cover bills. “Many people are frozen,” he explains. “They don’t know when they’ll be paid, and they’re just waiting to see what happens.”
The most important thing you can do right now? Be proactive.
What To Do If Your Paycheck Stops (or You’re Worried It Might)
Here’s a practical game plan to protect yourself financially during the shutdown.
1. Prioritize Essentials
If cash is limited, focus first on keeping your housing and transportation secure.
- Pay your mortgage or rent and auto loan before unsecured debts like credit cards.
- Contact your lenders early, most have hardship or deferral programs, but only if you reach out before missing payments.
2. Make Minimum Payments on Credit Cards (If You Can)
Even small payments help prevent late fees and protect your credit score.
If you must miss a payment, call your issuer and explain the situation, they may offer temporary relief or skip-payment options.
3. Cut Back and Preserve Cash
Pause nonessential subscriptions, streaming services, and discretionary spending.
If you rely on credit cards for basics, track balances closely to avoid new high-interest debt. Avoid “buy now, pay later” options that can create hidden liabilities if the shutdown drags on.
4. Keep Communication Lines Open
If you’re a federal employee or contractor, stay in touch with HR or your agency. Document any furlough or loss of income, you may need it later for relief programs or bankruptcy protection, if necessary.
5. Consult a Professional Early
Even if you never file bankruptcy, a consultation helps you plan before problems snowball. A lawyer can explain how to protect assets, avoid default, and prepare in case the shutdown continues longer than expected.
“As a trustee, I tell clients it’s better to talk before you’re in crisis,” says Simons. “You can make smarter decisions when you have options.”
If You’re Already Behind
If you’ve missed payments due to the shutdown:
- Don’t ignore creditor calls or letters. Stay in contact, it shows good faith.
- Know your timeline. Mortgage lenders often wait 90 days before starting foreclosure; auto lenders may act faster.
- Keep records. If bankruptcy becomes necessary later, documentation of hardship and communication can help your case.
What If You Own a Small Business?
Many California small businesses rely on federal contracts, research grants, or regulated operations. If payments stop:
- Contact clients and subcontractors early to renegotiate terms.
- Pause noncritical expenses until cash flow stabilizes.
- Review business credit lines and apply for short-term relief before funds run tight.
Stay Calm, Stay Informed, Stay Proactive
The shutdown’s impact may be temporary, but your financial stability depends on the choices you make right now. Whether you’re a furloughed employee, a contractor, or a small business owner, taking early action will protect your options and reduce long-term damage.
If your income is disrupted or debt feels overwhelming, talk to a professional now rather than later. The sooner you get advice, the more choices you’ll have.
Contact Janus Law Right Now
Janus Law helps individuals, families, and small business owners throughout California navigate Chapter 7 and Chapter 13 bankruptcy.
Contact us now to discuss your situation confidentially and learn how to protect your assets during this uncertain time.
- Life After Chapter 7: How to Rebuild Credit and Confidence - November 9, 2025
- How the 2025 Government Shutdown Is Affecting Californians and What You Can Do Now? - November 3, 2025
- Filing Bankruptcy in Riverside: What Inland Empire Residents Need to Know - October 17, 2025
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