Facing bankruptcy and unemployment may seem complicated, however in many cases, being unemployed may improve your chances of qualifying for Chapter 7 bankruptcy. Essentially, the lower your disposable income, the more likely you’ll pass the means test. In addition, unemployment may even allow you to pay less money to unsecured creditors during Chapter 13 bankruptcy. Let’s examine how bankruptcy and unemployment works below.
Unemployment and Passing the Chapter 7 Means Test
In order to qualify for Chapter 7 bankruptcy, you must take and pass the means test. This test basically examines the amount of income you received for the six months prior to your bankruptcy filing date. If that amount of income is lower than the median (average income of other similar households in your state), then you will qualify for Chapter 7 bankruptcy. So, if you’re unemployed and receiving unemployment, then there is a good chance that you’ll pass the test due to your reduced income.
If you were employed and received above the median income the six months before your bankruptcy filing, then you may still qualify via special circumstances. Simply indicating that you lost your job may sufficiently prove that you can no longer repay your debts.
Discharging Debt Through Chapter 7
How Chapter 7 bankruptcy works is that it wipes out unsecured debt to allow you to focus on your secured debt. Examples of unsecured debt includes credit card debt, medical bills, and personal loans. Secured debt consists of debt backed by tangible assets and property used as collateral. If you cannot repay your secured debt, such as your car or home, then you can surrender those assets to discharge your debt.
Facing bankruptcy and unemployment offers the unique chance of obtaining a fresh financial start. Since Chapter 7 wipes away your unsecured debt, if you have any secured debt that you cannot repay, then you can simply surrender those assets to discharge that debt as well.
Chapter 13 Bankruptcy is Tougher When Unemployed
Chapter 13 bankruptcy lets individuals reorganize their debt into a regular payment plan that can span anywhere from three to five years long. Unlike Chapter 7, filing for Chapter 13 will still allow you to keep any nonexempt assets or property. So, if you have a particular asset that you do not want to surrender, then filing for Chapter 13 may be your best bet.
However, filing for Chapter 13 bankruptcy requires that you receive a stable income that is enough to keep up with your payments. So, if you are unemployed, then you may have a tougher time keeping up with those payments. Though, if you receive other sources of income besides unemployment, such as disability benefits or Social Security, then you may have enough to show the court that you can make your regular payments.
Should You File for Bankruptcy While Unemployed?
If you’re unemployed, determining whether to file for bankruptcy or not will depend on the following factors:
- Are you likely to incur more debt before you secure a new job? If this is the case, then holding off on filing for bankruptcy until you have more debt to discharge may be your best.
- Once your secure a new job, will you more than likely not qualify for Chapter 7? If so, then it may be better to file for bankruptcy while you are still unemployed.
Further Help with Bankruptcy and Unemployment
If you are facing bankruptcy and unemployment, and you want to explore your options, then contact an experienced bankruptcy attorney by calling Gregory J. Wald Attorney At Law today.