Everything You Need to Know About Unemployment and Bankruptcy

The United States does not typically have the most generous unemployment benefits. People who are out of work can quickly find themselves drowning in a mountain of bills that only get worse as they have to rely more on credit cards to get by.

While many people do not like to consider bankruptcy, it is an option to help rid yourself of bad debts, possibly hold onto your home, and get a fresh financial start. Your employment status will affect how your bankruptcy goes, so it’s important to understand what to expect from this process.

Can You File for Bankruptcy While Unemployed?

Because unemployment is one of the most common reasons for financial struggles, you absolutely can file for bankruptcy if you don’t have a job.

Whether you are receiving unemployment benefits when you go through bankruptcy will likely affect whether you can seek a Chapter 7 or Chapter 13 filing and how much money you will owe on your debts.

Talking to an experienced bankruptcy attorney as early in the process as possible will put you in the best position for a successful resolution. A bankruptcy attorney will be familiar with federal and your state’s bankruptcy laws and the best course of action for you to take.

Can I File Bankruptcy With No Money While Unemployed?

Yes. You do not need a stream of income to seek bankruptcy protection. Having no income, including unemployment benefits, could make it easier to pursue a Chapter 7 liquidation bankruptcy that quickly wipes out your unsecured debts, such as credit card, utility, and medical bills.

The Means Test and Your Bankruptcy

Everyone who files for bankruptcy protection must undergo what is called the “means test.” This test examines how much money you have versus your debts. In some states, unemployment benefits will count as income in the means test.

The means test will play a large part in determining whether you file for Chapter 7 or Chapter 13 bankruptcy. It will look at:

  • How long you’ve been unemployed
  • What you were making before losing your job
  • Your prospects for finding a new job (harder during economic downturns)
  • Other sources of income (unemployment benefits, Social Security, investments, etc.)

Chapter 7 Bankruptcy

The most common type of bankruptcy protection is Chapter 7. Known as “liquidation bankruptcy,” this type of bankruptcy will allow you to quickly discharge most of your unsecured debts like those mentioned above.

The means test will look at your average income over the last six months, and if you’re unemployed, you likely will make little enough to qualify for a Chapter 7 filing. If you still make too much to qualify for Chapter 7, your attorney can help you better evaluate your options. You may even be able to make a case that you will still have a hard time repaying your debts.

Chapter 13 Bankruptcy

Known as “repayment bankruptcy,” a Chapter 13 filing involves consolidating your debts into a single, affordable monthly payment and negotiating a set length of time to make payments, typically three to five years.

You do not have to have a job to qualify for Chapter 13, but it could be more difficult to make your monthly payments as part of your bankruptcy if you are unemployed. Again, this is where a bankruptcy attorney’s help is essential. Your attorney will help you think through all of the present and long-term ramifications of your bankruptcy, which chapter you file under, and the effect of your unemployment status.

Speak to an Experienced Bankruptcy Attorney Today

This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified bankruptcy lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local bankruptcy attorney to discuss your specific legal situation.

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