Can You File for Bankruptcy While Unemployed?
Can unemployed people file for Chapter 7 bankruptcy or Chapter 13 bankruptcy? In short, yes.
Filing for bankruptcy does not depend on your job status, and many filers may seek debt relief after losing a job and not having enough income. Choosing the correct type of filing for your bankruptcy case depends on your financial situation, including the amount of your debt, payment plan options, and your outlook on getting a new job.
It can be hard to tell which bankruptcy plan you should file for if you are unemployed. Both bankruptcy plans can stop a foreclosure, for example, but one involves liquidating your assets and the other restructuring your finances.
You should consider the details of both Chapter 7 and Chapter 13 plans:
- Chapter 7 bankruptcy discharges your unsecured debts. You can get debt relief from credit card debt, medical bills, and other traditional debt. There is other debt you generally cannot dismiss, such as student loans, child support, and spousal support. You also must pass a means test to get a Chapter 7.
- Chapter 13 bankruptcy will discharge some debt but requires a repayment plan. You need 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 While Unemployed
If you are unsure about Chapter 7 requirements, 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. The acceptable amount for an average income changes based on the size of your family. If you earned a lot of money in the past six months, the bankruptcy court might deny your request. If this happens, you may need to wait a few months so that your last six months of income appear lower.
- Qualifying through the Chapter 7 means test for your state. This calculation compares your disposable income, debt, family size, and bills against your state's median income. If you are unemployed, proving you cannot pay bills and debt can be simple.
If Chapter 7 is approved, an automatic stay immediately goes into effect, and debt collectors cannot harass you. Non-dischargeable debts still need to be paid, however. This also relieves you from wage garnishment on future paychecks to repay the debt.
Filing for Chapter 13 Bankruptcy While Unemployed
Chapter 13 bankruptcy requires a repayment plan that pays back part of your debt. The advantage is that you will have more time to pay back debt and keep secured debts, like your home mortgage or car loan. However, it can be challenging 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 that will be needed for living expenses, rent, and mortgages. Suppose you have enough rental or unemployment income to cover your current bills and repay the repayment plan. In that case, you may qualify for Chapter 13, but this is a rare occurrence.
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 requires 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 unemployment will last?
- Was the money I was making enough to last me for a few months?
- What am I getting through unemployment compensation or 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 my medical debt grow while I am unemployed?
You must wait to file if you recently 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 in the future. A bankruptcy discharge only works on your debt when you file, so any significant medical debt in the future would not be discharged. You may wish to wait until your medical procedures or care is complete to see a full view of your medical debt.
Unemployed? Contact a Bankruptcy Lawyer for a Fresh Start
Bankruptcy law can be challenging to understand and navigate. Obtain legal advice from a bankruptcy attorney to help you succeed. An attorney can help you determine your eligibility for bankruptcy and assist you in making the right decisions. Contact an experienced bankruptcy attorney who knows the Bankruptcy Code and can advise you whether to file. If you decide to proceed, your lawyer can file the right bankruptcy petition for you.