Contrary to popular belief, it’s possible to file for bankruptcy while unemployed, provided you meet the income requirements for either Chapter 7 or 13. However, unemployment or limited income affects these filings in distinct ways. Chapter 7 bankruptcy often suits those with jobs who have little to no money left after covering monthly expenses. In contrast, filing for Chapter 13 typically isn’t a viable option for unemployed individuals. Please continue reading as we explore what you should know about these matters and how our knowledgeable Gillette Bankruptcy Lawyers can help you navigate your legal options.
How Can Unemployment Affect My Bankruptcy Case?
Unemployment frequently leads individuals to file for bankruptcy in Wyoming. While employment is not a prerequisite for Chapter 7 bankruptcy, passing the means test is required instead. Job loss or income reduction can complicate matters for Chapter 13. Specifically, unemployment can hinder both initiating and maintaining a Chapter 13 bankruptcy repayment plan.
Chapter 7 serves individuals with low or no income who do not have substantial assets. It’s designed to discharge eligible debt. To file under this chapter, you must pass the means test. This test uses a person’s average income over the last six months to determine Chapter 7 eligibility. A filer who may not have passed the means test before may become eligible a month or two into unemployment. If you receive unemployment benefits, it will likely not put you over the median income for your state.
In situations where unemployment benefits exceed the median income, it’s essential to calculate your disposable income. This involves deducting allowable necessary expenses as defined by the state. Typically, unemployment benefits don’t reach a level that results in substantial disposable income. Consequently, individuals receiving unemployment benefits generally meet the requirements of the means test.
Chapter 13 bankruptcy mandates debt repayment over three to five years, with options like lien stripping and loan cram-downs. Unemployment significantly hinders adherence to a repayment plan, even with benefits. Filing Chapter 13 while unemployed is inadvisable, unless alternative income sources like rental income or property sales are available to fund the plan.
Unemployment during an active Chapter 13 case often leads to dismissal due to inability to make payments and prevents discharge. However, a transition to Chapter 7 bankruptcy may be possible, often offering a quicker resolution. If re-employment occurs before dismissal, resuming payments might be feasible with documentation proving plan affordability to the truee or court.
Should I Consult an Attorney?
If you are currently unemployed and considering bankruptcy, consulting a qualified bankruptcy attorney is strongly recommended. A bankruptcy attorney can help you determine the best course of action given the unique circumstances of your situation, including whether Chapter 7 or Chapter 13 is better suited, and guide you through the complexities of the legal process.
At 307 Bankruptcy, we are prepared to help you understand the benefits and drawbacks of each bankruptcy chapter to ensure you make informed decisions about the best path forward. Connect with our firm today to schedule a consultation.
