If you’re unemployed and your monthly obligations exceed your financial resources, you may be feeling the “squeeze” right about now. If you’ve fallen far behind on your monthly debts, there’s a good chance that you’re running out of options. Now you’re wondering, “Can I file bankruptcy even though I’m unemployed?”
You are not required to have a job to file for bankruptcy relief. In many situations, being unemployed actually helps a debtor qualify for Chapter 7 or it allows the debtor to pay less to unsecured creditors through a Chapter 13 bankruptcy. However, if you want to file a Chapter 13 to protect your home from foreclosure, unemployment could cause the case to be dismissed if you end up not having enough income to afford the repayment plan.
Filing a Chapter 7 Bankruptcy
Chapter 7 bankruptcy is reserved for low-income debtors. It allows them to enjoy the fresh start they need by discharging most, if not all of their unsecured debts, such as medical bills, personal loans, and credit card debt.
For a debtor to qualify for Chapter 7, they must meet the “Bankruptcy Means Test.” Meaning, their income in the past six months cannot exceed the state’s median income for a household of the similar size.
If your income falls below the state’s median for a household of your size, you automatically qualify for a Chapter 7. If you’re out of work and have little to no income, it will help you qualify for a Chapter 7 than it would if you had a good job.
If you’re married and unemployed but your spouse has a job, the fact that you’re unemployed can help you and your spouse qualify for a Chapter 7. This is because your unemployment helps reduce your household income.
What About a Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is for debtors who earn too much to qualify for a Chapter 7 bankruptcy. It’s also for debtors who want to avoid having their vehicles repossessed and their houses foreclosed upon. With a Chapter 13, debtors repay all or a portion of their debts over three to five years. If you’re unemployed, you may not have sufficient income to qualify for a Chapter 13.
“What if I want to file a Chapter 13 but I’m out of work?” If you have other sources of income; for example, your spouse has a decent income, or you are receiving Social Security retirement or disability benefits, workers’ compensation, retirement income, or real estate income, you may have enough income to qualify for a Chapter 13 repayment plan.
However, if you are not able to keep up with your monthly payments, the court can dismiss your Chapter 13 case. For more information about filing bankruptcy, contact us today. To learn about ending collectors’ calls, read: “Stopping Creditors Dead in Their Tracks.”