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Can I File for Bankruptcy If I Am Unemployed?

Many people want to know, "Can I file for bankruptcy if I am unemployed?" This is understandable because periods of unemployment can cause great financial distress. A sudden reduction in income can make it impossible to keep up with the cost of daily living expenses, let alone continuing to make that payment. Unemployment can make it impossible for a family to survive. The financial stress makes it difficult when searching for a new job. To address this issue, many families choose to file for bankruptcy and use that as an opportunity to wipe out unsecured debt.

Impact of unemployment

Being unemployed does impact the type of bankruptcy that a petitioner may qualify to file. For example, a Chapter 13 Bankruptcy requires the ability to make debt repayments on a schedule. Without secured or high enough income, it is typically impossible for a debtor to make this type of agreement.

For example, anyone making $2,500 a month on unemployment is not going to have the money necessary to pay a $2,000 mortgage, plus living expenses, even with a reduced debt schedule. A Chapter 13 Bankruptcy is off the table for unemployed filers, unless a spouse is also working or there are additional sources of income that can be used for debt repayments.

On the positive side, being unemployed could make it easier to qualify for Chapter 7. Unlike a Chapter 13 where the petitioner is obligated to make debt payments at a lower amount, a Chapter 7 bankruptcy will wipe out unsecured debts so that they do not need to be paid at all. As such, there are income requirements that make it difficult to qualify if a petitioner makes too much money. In other words, the less money a person makes, the easier it is to file for Chapter 7 bankruptcy.

Historical income

When applying for a Chapter 7 Bankruptcy, the court will typically look at the income made over the past six months. If the unemployment is new and the previous income was too high to qualify for a Chapter 7, it may be necessary to wait a couple months to file so that this income can drop off. As an attorney, we can determine if this will be necessary after reviewing income information during a consultation.

Reaffirming debts

One challenge an unemployed petitioner may face is when it comes to the reaffirmation of debt. If there are certain debts that a person does not want to eliminate because they want to keep that particular asset, a creditor may be unwilling to negotiate due to the unemployment. An example of this would be a petitioner wanting to keep a home that has equity in it.

The debt on that home would need to be reaffirmed through the bankruptcy process if the petitioner wanted to remain living there. The creditor would have to agree to that reaffirmation and this is something that an attorney can help to negotiate.

Work with an attorney

Working with an attorney makes it easier to file for bankruptcy and to do so successfully, regardless of your employment status. For help, call our law firm today.

NOTE: This is for informational purposes only and does not constitute legal advice.