Filing For Bankruptcy While Unemployed

Individuals who find themselves under a mountain of debt and can no longer pay their creditors due to unemployment are able to file for bankruptcy, just as businesses can. Filing for bankruptcy can be the solution to most of your legal and financial problems. You can be relieved from eligible financial obligations and given a fresh start to control your finances. Individuals are able to file for personal bankruptcy under Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Under Chapter 7 bankruptcy, low-income debtors are accorded a clean slate to start over as their dis-chargeable debts are wiped out. This means that you no longer owe the debts that are canceled. To be eligible for Chapter 7 bankruptcy, a debtor’s disposable income must be low enough to pass the means test. Individuals who do not have a job, and have little or no income, qualify for Chapter 7 bankruptcy more easily than people who owe, but hold well-paying jobs.

The Chapter 7 bankruptcy means test compares your monthly income for the 6 months prior to your bankruptcy against the average income of a similar home in your state. If your income is less than the average, you automatically pass the Chapter 7 bankruptcy means test without needing to complete the rest of the form.

Chapter 13 Bankruptcy

When you’re unemployed, it can be harder to qualify for a Chapter 13 Bankruptcy. For debtors who wish to pay their priority obligations or those trying to catch up on missed payments or save their home, filing for a Chapter 13 bankruptcy is normally a better choice than filing under Chapter 7. 

If you choose to file for a Chapter 13 bankruptcy, you will be required to propose a plan to pay back a fraction of your debts in a period of 3-5 years by making monthly installments to a bankruptcy trustee. You will, therefore, need to ensure that you have enough income that can be used to make the monthly payments.

Chapters 7 And 13 Bankruptcy Differences

Filing for a Chapter 13 bankruptcy will allow you to make use of your regular income to adjust your debts, do away with unsecured second mortgages, catch-up on unpaid mortgage installments, and pay back non-cancellable priority debts. Most unemployed debtors who choose to file for Chapter 7 bankruptcy do so as a means to wipe out their revocable debts.

Apart from helping you qualify for a Chapter 7 bankruptcy, being unemployed can also allow you to pay less than is actually owed to unsecured creditors in a Chapter 13 bankruptcy. On the other hand, unemployment can also cause your Chapter 13 case to be dismissed if you don’t have enough revenue to afford your repayment plan.

Even though being unemployed reduces the amount you have to pay your unsecured creditors, monthly payments largely depend on mortgage arrears, priority obligations, and other unsecured debts. However, it is important that you show the court beyond any reasonable doubt that you can actually keep up with your proposed payment plan without failure; otherwise, your case will likely be dismissed.

Why You Need A Bankruptcy Attorney

Filing for Chapter 7 or Chapter 13 bankruptcy in a court can be a very stressful process, not to mention difficult, too, unless handled skillfully by a practiced bankruptcy attorney. There is a high chance of dismissal by the court in cases where the applicant makes some minor blunders when handling the paperwork.

A bankruptcy attorney can advise and guide you in preparation of all the legal documentation, paper works as per the local court regulations and procedures. They are also experienced enough to clarify any specific and dire questions in connection with the process of getting out of debt through filing a bankruptcy claim under chapter 7 or Chapter 13 bankruptcy regulations.