Filing Bankruptcy While Unemployed
Many of us are just one paycheck away from financial hardship. If you’re faced with an unexpected lay off or job loss, you could be in the same boat. If your period of unemployment is extended, bills can start to pile up and you may depend on credit cards to get by. When your debt becomes unmanageable, you may consider turning to bankruptcy for relief, which is completely understandable and common. The fact that you don’t have a job adds some factors to consider as you prepare to file.
Chapter 7
The first thing we’ll decide is which chapter of bankruptcy will be the best fit for you. Since you may not have much disposable income, we’ll consider Chapter 7. This type of bankruptcy is designed for people who are not able to pay off their debt in a reasonable length of time. To determine if you’re eligible, we’ll conduct the means test, which is a calculation using your income, assets, debts, and living expenses. Being unemployed will make it more likely that you’ll pass the test and qualify for a Chapter 7, even if you’re receiving unemployment benefits. Additionally, if your total household income is below the median for a similar household where you live, you’ll automatically pass the Means Test.
There is a chance that Chapter 7 filers may lose property, such as their home or car, but there are many exemptions we can use to protect your property. Most Chapter 7 cases are considered no-asset. After exemptions, most filers do not have any non-exempt property which could be seized and sold in order to repay outstanding debts, unsecured debts, such as medical bills and credit cards, are typically discharged completely in a Chapter 7.
Chapter 13
If you have a car payment or mortgage and would like to keep all of your property, it may be worthwhile to consider a Chapter 13. A Chapter 13 is also a good choice if you have income, but just not enough to make full payments on all of your debts each month. Debts are reconfigured and you’ll make reduced payments over a three- to five-year time period. At the end of that time, most remaining debt is discharged. This may allow you to roll mortgage arrearages into your payment plan, and you may also be able to discharge a second mortgage or cram down a car payment. Your payment plan takes your non-dischargeable debts, such as student loans and child support, into consideration, and it may be easier to keep up with these payments.
If you’re attempting to file a Chapter 13 while unemployed, it can be challenging to prove to the court that you’ll be able to keep up with your proposed plan, unless you have another source of income, are receiving unemployment benefits, or have an employed spouse. Without this, the court will likely require that you file a Chapter 7. If anything changes related to your employment status or income during the bankruptcy process, just let me know and we can make changes accordingly.
A New Chapter
Losing your job can feel pretty hopeless, but it could be the new start you didn’t even realize you needed. You may be able to explore new career options that are even more lucrative, or this may be just the push you need to truly take control of your finances and get your debt in order. If you’re uncertain about how to move forward, please contact me so that we can make a plan.
