Can I File If I Am Unemployed?
Can I File If I Am Unemployed?
Our Kansas City Bankruptcy Attorneys Answer Your Questions
An unexpected job loss can take a tremendous toll on your finances. If you have been struggling to keep up with your expenses for several months, bankruptcy might provide you the fresh start you need. Although you don’t have to be employed to file for bankruptcy, you will also need to consider the likelihood of incurring more debt while on unemployment. A debtor does not want to file bankruptcy only to find themselves back in debt in a few months.
Learn more about your options in a free initial consultation with Patton & Dean, LLC. Our experienced Kansas City bankruptcy attorneys can guide you through the entire process. Contact us at (913) 203-4786 now to schedule.
Factors to Consider Before Filing Bankruptcy While Unemployed
Here are some key factors to weigh:
Your Debt Profile:
Review your total debt to determine if it is mostly dischargeable. Commonly dischargeable debts include credit card balances, medical bills, payday loans, and personal loans. If a large portion of your debt falls into these categories, bankruptcy may effectively alleviate your financial burden. However, if your debt primarily includes non-dischargeable obligations, such as recent tax debt, child support, or student loans, bankruptcy may not provide the relief you seek.
Future Job Prospects:
Reflect on your employment outlook. If you anticipate securing a new job soon, you might consider delaying filing until you have a clearer picture of your financial standing. An upcoming income boost could affect the type of bankruptcy you qualify for and ensure greater stability post-bankruptcy.
Long-Term Financial Planning:
Bankruptcy can discharge existing debts, but it won’t prevent you from accumulating new ones. If you’re relying solely on unemployment benefits or other temporary income sources, you may risk falling back into debt. Seeking financial counseling and creating a budget could help you avoid repeating the cycle and position yourself for long-term success.
Emergency Expenses:
Evaluate whether you have savings or access to other resources for unforeseen expenses, such as medical bills or car repairs, after filing bankruptcy. If not, this could be a vulnerability that needs addressing before moving forward.
Benefits of Chapter 7 for Unemployed Individuals:
- Quick debt discharge, typically within three to six months.
- No repayment plan required.
- Frees up limited income to cover basic necessities like rent and food.
Filing Chapter 7 can provide immediate relief from creditor harassment, wage garnishments, and lawsuits, offering you breathing room to rebuild your financial life.
By carefully analyzing your circumstances and seeking professional legal guidance from Patton & Dean, you can determine whether Chapter 7 bankruptcy is the right step for you.
Chapter 7 Bankruptcy, Median Income & the Means Test
If you are unemployed, you will likely have an easier time qualifying for a Chapter 7 bankruptcy. This type of bankruptcy eliminates, or discharges, a majority of an individual’s debts. Dischargeable debts include items like credit cards, collection accounts, lawsuits, medical bills, repossessions, payday loans, personal loans, and overdue utilities. Non-dischargeable debts include child support, most tax debt, and, in the vast majority of situations, student loans.
To qualify for a Chapter 7 bankruptcy, a debtor must pass a “means test,” which compares the debtor’s gross household income to the “median” income mandated by the county in which you reside for a similar-sized household. If you are below the median income level, you should qualify for Chapter 7 debt relief.
If you are above the median income amount, you may still qualify for Chapter 7 debt relief. To do so, a debtor must illustrate there is no disposable income in their budget. This is accomplished by completing the means test. To start, the means test takes a debtor’s gross monthly income, and deductions are then made for taxes, insurance, living expenses, and a host of other IRS-mandated allowances. After all the deductions are applied, the means test produces your disposable monthly income. If the number is low enough, you should qualify to file Chapter 7 bankruptcy.
For unemployed individuals, Chapter 7 bankruptcy is often a more viable option. It provides a streamlined process for discharging unsecured debts, giving you a clean financial slate.
Dischargeable Debts:
Chapter 7 eliminates many types of unsecured debts, including:
- Credit card balances
- Collection accounts
- Lawsuit judgments
- Medical bills
- Payday loans
- Overdue utilities
- Personal loans
Non-Dischargeable Debts:
However, some debts cannot be wiped out, including:
- Child support
- Most recent tax debts
- Student loans in most situations
The Means Test and Median Income:
To qualify for Chapter 7 bankruptcy, you must pass the means test. This evaluates whether your income is low enough to meet eligibility requirements.
- Below Median Income: If your gross household income is below the median income for your household size in your county, you automatically qualify.
- Above Median Income: If your income exceeds the threshold, you may still qualify by demonstrating that you have no disposable income after necessary expenses.
The means test starts with your gross monthly income, then subtracts allowable expenses such as taxes, insurance, and living costs. If the remaining disposable income is minimal, you’re likely eligible for Chapter 7 relief.
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Chapter 13 Bankruptcy & Repayment
Similar to a Chapter 7 bankruptcy, a Chapter 13 bankruptcy will most likely discharge your credit cards, collection accounts, lawsuits, medical bills, repossessions, payday loans, personal loans, and overdue utilities. Chapter 13 bankruptcy can also be used to stop foreclosure proceedings on your property, stop garnishments, defer student loan payments, or reorganize your tax debt.
Depending on the complexity of your case and the district in which it is filed, a Chapter 13 bankruptcy can be filed with little to no upfront fees. Chapter 13 sets up the debtor on a manageable monthly payment plan with the Trustee’s office. In this payment plan, a debtor will be required to pay back anywhere from 0% to 100% of his debt, depending on the household income and expenses.
Learn more about your options in a free initial consultation with Patton & Dean, LLC. Our experienced Kansas City bankruptcy attorneys can guide you through the entire process. Contact us at (913) 203-4786 now to schedule.
