Bankruptcy While Unemployed

As an Orange County bankruptcy attorney, clients frequently ask whether or not an unemployed person can file bankruptcy. The answer to this question is a little more complicated than it appears on the surface. You should first schedule a consultation with an Orange County bankruptcy attorney to provide you with more definite answers and options. An attorney goes through the facts of your situation to help determine whether bankruptcy is right for you.

When it comes to whether or not an unemployed person can file bankruptcy, the answer always depends on each individuals set of facts.

Types of Bankruptcy

There are two main types of bankruptcy.  First, there is Chapter 7 bankruptcy. The Chapter 7 process is generally a smoother for unemployed clients. On the other hand, the second common bankruptcy is Chapter 13. Chapter 13 is more complicated for unemployed debtors. In Chapter 13, you must show the bankruptcy trustee that you have enough income to support a repayment plan. Although you have to make monthly payments, clients have many reasons to file Chapter 13.  This is also true for unemployed people. Your bankruptcy attorney can help you with this decision. As with many things associated with the legal justice system, the answer to your question about bankruptcy and unemployment depends on your current situation.

Chapter 7 Bankruptcy

In any case, most unemployed people file Chapter 7. Typically, all of your debts get discharged or wiped out when you and your Orange County bankruptcy attorney complete your case.  Chapter 7 bankruptcy is designed for low-income debtors that own few assets. In most cases, your creditors will not receive any payments once you and your attorney file your Chapter 7.  This is because your most property is exempt from liquidation. On the other hand, if you unprotected own valuable assets, then the bankruptcy trustee can sell your property to pay creditors. Schedule a consultation to speak with a bankruptcy attorney for specifics.

For unemployed people, Chapter 7 works in your favor because you must meet the “means test” in order to qualify. The means test compares the income of your household against your state’s median income for the same size household. You might not qualify for Chapter 7 if your income is above the median. However,  if your income is below the median due to unemployment, you qualify for a Chapter 7 bankruptcy.  As such, unemployment actually benefits you in Chapter 7.

Chapter 13 Bankruptcy

On the other hand, you and your Orange County bankruptcy attorney can file a Chapter 13 bankruptcy if you do not qualify for Chapter 7. Under Chapter 13, the law requires you to pay back all or a portion of your debts through a three to five-year payment plan.  Unemployment works against you in this scenario. However, this does not disqualify you automatically from filing.

Many people have additional sources of income such as rental income, unemployment benefits, or Social Security. You and your Orange County bankruptcy attorney must demonstrate the ability to make regular monthly payments to the bankruptcy trustee.  If we can successfully do this, there is no reason why your unemployment will interfere with your Chapter 13 bankruptcy.

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