Adam Law Group Blog

Can You File for Bankruptcy if You Lost Your Job?

 

With businesses closed during the coronavirus pandemic, many people in Florida have ended up unemployed. According to the United States Department of Labor, the total number of Americans who have filed for unemployment is approximately 22 million individuals, or 13.5% of the workforce. 

 

With this number anticipated to increase even further, many people have sought options like bankruptcy to take control of their debt. Other people have refrained from filing for bankruptcy out of fear that they cannot do so. In reality, you need not be employed to file for bankruptcy. 

 

Many times, being unemployed makes it easier for individuals to qualify for Chapter 7 bankruptcy or lets them pay less to unsecured creditors as part of Chapter 13 repayment plans. In some situations, if a person does not have enough income to afford a repayment plan, it is possible to end up unable to pursue Chapter 13 bankruptcy. Due to these complexities, this article reviews some important factors to consider about the relationship between being unemployed and filing for bankruptcy.

 

Passing the Chapter 7 Means Test While Unemployed

 

Chapter 7 bankruptcy was created to help individuals with low-income discharge various debts and obtain a new start at building a strong credit history. To qualify for Chapter 7 bankruptcy, a person’s disposable income must be low enough to pass the means test. If you are unemployed, you will likely find that you have an easier time qualifying for Chapter 7 bankruptcy than if you were still making a paycheck. 

 

This is because the means test compares a person’s average monthly income during the six months preceding bankruptcy against Florida’s median income for other households in the state, which is currently $49,172. If your income is below this limit, you will automatically qualify for Chapter 7 bankruptcy.

 

Difficulties with Qualify for Chapter 13 

 

Chapter 13 bankruptcy offers debtors with regular income a chance to reorganize their debts as well and pay back nondischargeable priority debts. While most unemployed debtors select Chapter 7 bankruptcy to erase their unsecured debts, for people who are attempting to save their homes or vehicles or catch up on payment obligations, Chapter 13 might be a better option. 

 

As part of Chapter 13 proceedings, a person proposes a plan to pay back a portion of their debts over a several year period by making monthly payments to a bankruptcy trustee. Unemployment often means that person can reduce the amount that must be paid to unsecured creditors, but the amount of a person’s monthly plan payments is also influenced by an individual’s priority obligations and other secured debts. 

 

If you have any sources of income other than employment like Social Security or income from a rental property, you likely have enough income to afford a Chapter 13 repayment plan.

 

Speak With a Knowledgeable Bankruptcy Attorney
The coronavirus pandemic has left many people feeling uncertain about how to move forward with overwhelming debt, but it is crucial to remember that there are several powerful options that you can still pursue. Contact the Adam Law Group today to schedule your free case evaluation.