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Can You File for Bankruptcy While Unemployed?

Yes, you can file for Chapter 7 bankruptcy or Chapter 13 bankruptcy while unemployed. Needing bankruptcy does not depend on your job status, and many people may need to file after losing a job.

Choosing the right type of bankruptcy for your bankruptcy case depends on your debt amount, your options to repay debt, and your outlook on getting a new job.

You should consider the high-level points of both options:

  • Chapter 7 bankruptcy discharges some (or all) of your debts. You can get debt relief from credit card debt, medical bills, and other traditional debt. There is other debt you cannot dismiss such as student loans, child support, and spousal support. You need to pass a "means test" to get a Chapter 7.
  • Chapter 13 bankruptcy will discharge some debt, but it requires a repayment plan. You need to have some disposable income to pay back some debt or give up property to a bankruptcy trustee. If you do not have a source of income, this may not be the right choice.

Filing for Chapter 7 Bankruptcy When Unemployed

If you are not sure about Chapter 7 requirements, you may want to talk to a bankruptcy attorney first.

The first step in filing bankruptcy is proving you qualify by:

  • Showing that your current monthly income is less than the median income for your state. This amount changes based on the size of your family. If you earned a lot of money during the past six months, the bankruptcy court might deny your request because you made too much money. If this happens, you may need to wait a few months, so your six months of income appear much lower.
  • Qualifying through the Chapter 7 Means Test for your state. This calculation looks at your disposable income, debt, family size, and bills against your state's median income. If you are unemployed, it can be easy to prove you cannot pay bills and debt.

If Chapter 7 is approved, you will have debts discharged right away, and debt collectors cannot harass you. Non-dischargeable debts still need to be paid, however. This also gives you relief from wage garnishment on future paychecks to pay back the debt.

Filing for Chapter 13 Bankruptcy When Unemployed

Chapter 13 bankruptcy requires a repayment plan that pays back part of your debt. The advantage is you will have more time to pay back debt and keep secured debts, like your home mortgage or car loan. However, it can be difficult to prove you have the money to make these monthly payments if you do not have a job.

Unemployment benefits can provide some monthly income, but most of this is needed for bills and rent or mortgages. Suppose you have enough unemployment income or rental income to cover your current bills and pay back the repayment plan. In that case, you may qualify for Chapter 13, but this is rare.

Bankruptcy Filing: When To Wait After Losing a Job

You may feel panicked after losing a job and watching debts increase. Filing for bankruptcy often needs the right timing to qualify, and an experienced bankruptcy attorney can tell you the best time to file for your situation.

You should consider these questions before you file or speak to an attorney:

  • When did I lose my job?
  • How long do I predict I will be unemployed?
  • Was I making good money that will last me for a few months?
  • What am I getting through unemployment compensation and unemployment insurance?
  • Does a new job look promising?
  • Is my job industry in demand?
  • Will I receive Social Security benefits soon?
  • Will I be unemployed for months or years due to injury or illness?
  • Will medical debt grow while I am unemployed?

Typically, you need to wait to file if you just had a high-earning position because you will fail the Means Test. You might also want to wait to file if you need more medical care. A bankruptcy discharge only works on your debt when you file, so any major medical debt in the future would not be discharged. Wait until your medical procedures or care is complete, so you can see a full view of your medical debt.

Bankruptcy is affecting many individuals due to job loss from COVID-19 (Coronavirus). See our resource section for related information.

Next Steps

Contact a qualified bankruptcy attorney to find out your options for navigating the best path forward.

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