Can You File Bankruptcy if You’re Unemployed?

If you’re unemployed and having a hard time paying your monthly bills, you may be considering bankruptcy and reasonably so. But you may also be wondering if you can file for bankruptcy when you’re unemployed. Will unemployment be a problem? It depends on the type of bankruptcy you’re interested in.

Generally, if you file Chapter 7 bankruptcy, the fact that you’re unemployed will work in your favor because it will help you qualify for Chapter 7. If it’s Chapter 13 you’re interested in, your unemployment could help you pay less to your unsecured creditors, however, if you don’t have enough income to pay monthly payments on a Chapter 13 repayment plan, you may not qualify for a Chapter 13.

Filing a Chapter 7 When You’re Unemployed

Not everyone can file Chapter 7 bankruptcy. If someone earns too much money, they may not qualify for Chapter 7; therefore, unemployment can definitely help you qualify for bankruptcy under this Chapter. To qualify for Chapter 7 bankruptcy, your disposable income would have to be low enough to pass the “bankruptcy means test.”

The bankruptcy means test compares a debtor’s income in the past six months to the average income for a household of their size in the state. So, when you’re unemployed, it can be much easier to pass the means test than if you had a well-paying job.

It Can Be Harder to Qualify for Chapter 13

People often file a Chapter 13 because they earn too much to qualify for a Chapter 7 because they want to keep their vehicles, they need to catch up on recent taxes or child support, or because they want to save their home from foreclosure. Since Chapter 13 involves a 3 to a 5-year repayment plan, unemployment can disqualify someone from filing a Chapter 13 because they can’t afford the monthly payments.

If you have other sources of income, such as Social Security retirement or disability benefits, unemployment benefits, workers’ compensation, rental or retirement income, you may have enough income to qualify for a Chapter 13. However, if you are not able to keep up with the monthly payments, your Chapter 13 case can be dismissed.

To explore your bankruptcy options and how they apply to your employment status, contact Albaugh Law Firm today!