Can I File for Bankruptcy if I’m Unemployed?

Bankruptcy filings are subject to a long list of complex legal and financial rules, so it’s reasonable to expect that your job could have some bearing on the outcome of your case.  But what if you don’t have a job?  Can you file for bankruptcy if you’re unemployed?  And perhaps more importantly, should you?  Our New Jersey bankruptcy attorneys explore some of the factors you need to consider before you file.

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If I Don’t Have a Job, Can I Still File?

The short answer to this question is yes, you can.  There is no law or regulation prohibiting unemployed people from filing, and in fact, losing a job can often be the catalyst which prompts the decision to file.  Moreover, there is no minimum amount of debt necessary to file, nor is there an age limit (provided you are at least 18 years old). Believe it or not, you don’t even have to be a citizen of the United States.  With some exceptions, just about anyone who wishes to file may do so perfectly legally.

That being said, unemployment can have an effect on how your case proceeds, so you need to assess your financial goals and work prospects before you get started.

Does Unemployment Affect Which Chapter You File For? Taking the Means Test

As the saying goes, “Just because you can, doesn’t mean you should.”  This also holds true for bankruptcy — but it applies more to some debtors than others.

Consider the Means Test, for instance.  Before you file, you must take the Means Test to determine which chapter of bankruptcy is more appropriate for your case.  If your income is below the median household income for the state you reside in, you pass the test and may file for Chapter 7.  If you fail the test (i.e. your income is above the median for a household of equivalent size), you will most likely have to file for Chapter 13, unless you can demonstrate an inability to satisfy the Chapter 13 repayment plan due to a lack of disposable income.

Therefore, if you have recently lost your disposable income due to the loss of a job, but you would prefer to file for Chapter 13, you may want to try and hold on until you are working again and can afford the repayment plan. If you truly cannot stand to wait, you may be able to finance a Chapter 13 plan with social security or unemployment benefits — but your plan will only be approved if its terms are deemed realistic and feasible.

Of course, if you would prefer to file for Chapter 7, your unemployment and consequent lack of disposable income to put toward a repayment plan may actually be an asset.  However, you should also bear in mind that while you won’t have to create a repayment plan under Chapter 7, you will also lose the ability to catch up on or discharge certain outstanding debts.

Additionally, you need to think carefully about the way you time your filing. While the Means Test measures your income against the median, it doesn’t make the comparison based on a single snapshot at that moment in time — it actually uses the past six months’ worth of income data. Therefore, if you just lost a job which paid a very large salary, the results of your Means Test could be misleading when compared with your present-day situation. You don’t want to find yourself in a position where you look like you can afford Chapter 13 on paper, while in reality you actually can’t.

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What if I Lose My Job During a Chapter 13 Bankruptcy?

These points bring up a very good question: what happens if you lose your job while you’re already in the middle of a Chapter 13 bankruptcy case?  How are you going to keep up with your repayment plan now?

Don’t panic.  The bankruptcy courts understand that life doesn’t always go according to plan, and that sudden changes can interfere with your original blueprint, no matter how meticulously structured.  If you lose your job in the middle of a Chapter 13, your bankruptcy lawyer can petition the courts to modify your plan, at which point you may be granted a new plan adjusted for your new financial situation.

Under your new plan, your monthly obligations will be reduced to reflect your loss of income.  As a result, you will pay less than you would have otherwise, meaning a greater portion of your debt will be discharged when the case is over.  Alternately, if the financial burden is very large, you may be able to obtain something called a hardship discharge.

If you’re thinking about filing for Chapter 13 or Chapter 7, whether you’re employed or unemployed, the experienced bankruptcy lawyers of Young, Marr & Associates can help.  To set up a completely free and confidential legal consultation, call our law offices at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania today.

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