One of the most common questions people ask is if they can file for bankruptcy if they have lost their jobs. Without a steady income, it’s easy to quickly fall behind on financial obligations and find bankruptcy as your only choice. Fortunately, yes, many people do declare bankruptcy while they are unemployed. There are a few things you do need to be aware of when doing this, though.
Chapter 7 May Be an Option
In order to file for Chapter 7 bankruptcy, you must pass the means test. This test is based off of the average amount of money you made per month for the past six months filing bankruptcy. If this average is below the average for a similar household in your area, you pass and can file. Being unemployed will greatly decrease your average income, even if you had a good job for several of those months.
On the Other Hand, Chapter 13 May Not Be Available to You
However, if you are unemployed, you may not be able to file for Chapter 13 bankruptcy. That’s because if you’re unemployed, even if you’re getting unemployment benefits, you may not have the disposable income to make repayments. That’s because Chapter 13 requires you to work with creditors to create a repayment plan. However, these payments are on top of your monthly bills and other payments such as your mortgage or auto payment. If you don’t have the income to cover all of those expenses, you won’t be able to file Chapter 13 unless you have some other sources of income.
Should You File While Unemployed?
This is a big question, and there is no standard answer. Instead, you’ll want to take a look at your particular situation. Remember, bankruptcy only looks at existing debt. This means it won’t discharge anything from the point after you file. If you aren’t reasonably certain that you will get a new job soon, you may find yourself continuing to face more and more debt. Another thing to keep in mind is that the means test looks at the average income over six months. If you’ve only been unemployed for a month or two, that average may still be too high.
If you’re not certain about filing for bankruptcy, the team here at Michael F. Kanzer & Associates can help you make that decision. Contact us today to arrange a free consultation.