What Should You Know About Bankruptcy And Unemployment
So, aside from these general rules about bankruptcy and unemployment, what should you know?
There are a few factors that influence your bankruptcy case when youre unemployed, including:
- Length of unemployment
- Earnings at your previous job
- Prospects of finding a job in the near future
- Other sources of income
These factors play a role in whether or not you will pass the means test. As mentioned earlier, if you were recently a high-income earner, chances are you wont qualify for Chapter 7.
No bankruptcy court is going to look at someone who was recently earning a great deal of money and just discharge their debts. The court assesses your average income over the past six months. If it includes high wages, its going to hurt your chances of qualifying. The means test is one of the tools used to determine if you qualify for Chapter 7 or Chapter 13.
The best thing you can do if you want to file for Chapter 7 but your recent income disqualifies you is to wait. About six months from now, if you dont find another job, youre likely to qualify for debt discharge.
If you cant wait or you know youll find a job within the next six months that will disqualify you, your best option is to file for Chapter 13. The problem youll encounter is that Chapter 13 requires you show an ability to meet payment obligations. You must have some type of income to qualify for Chapter 13.
Still Have Questions Get The Answers
Bankruptcy can be complex and filing alone leaves you vulnerable to mistakes. To ensure your petition for bankruptcy is accepted the first time, work with the Certified Bankruptcy Specialists at The Law Offices of Larry D. Simons.
We have helped Mission Hills and Riverside residents find relief from their debts. Contact us right now to see if bankruptcy can work for you.
Filing For Chapter 7 Bankruptcy When Unemployed
If you are not sure about Chapter 7 requirements, you may want to talk to a bankruptcy attorney first.
The first step in filing bankruptcy is proving you qualify by:
- Showing that your current monthly income is less than the median income for your state. This amount changes based on the size of your family. If you earned a lot of money during the past six months, the bankruptcy court might deny your request because you made too much money. If this happens, you may need to wait a few months, so your six months of income appear much lower.
- Qualifying through the Chapter 7 Means Test for your state. This calculation looks at your disposable income, debt, family size, and bills against your state’s median income. If you are unemployed, it can be easy to prove you cannot pay bills and debt.
If Chapter 7 is approved, you will have debts discharged right away, and debt collectors cannot harass you. Non-dischargeable debts still need to be paid, however. This also gives you relief from wage garnishment on future paychecks to pay back the debt.
How Does Bankruptcy Work
First, it helps to know how bankruptcy works. There are several chapters in the bankruptcy codes, including ones for businesses and individuals.
The chapter that is right for your situation will depend on several factors, including:
- Your income
- The number of people you claim as dependents on your tax returns
- The number and value of any assets you own
The Chapter 7 Means Test
The means test determines whether you qualify for Chapter 7 bankruptcy based upon your income during the six months before you file bankruptcy. If you’re unemployed, there is an excellent chance that you qualify for Chapter 7 bankruptcy based upon your reduced income.
The means test looks at your average income over the six months before filing, and if your income is below the median , you will qualify to file under Chapter 7. If you’ve been receiving unemployment, your income is probably significantly less than it was when you were employed, and that increases your chances of qualifying for a Chapter 7 bankruptcy.
If your average income over the previous six months is over the median, you may still qualify for a Chapter 7. The means test allows you to indicate whether special circumstances apply that would allow you to qualify. Indicating that you recently lost your employment may be sufficient to prove that you do not have the money with which to repay your debts.
For details on how the means test works, see The Means Test & Chapter 7 Eligibility.
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Unemployment May Help You Qualify For A Chapter 7 Case
Before you can file a Chapter 7 bankruptcy you need to show that you qualify to do so. You can qualify in one of two ways. First, if your income from the previous six months is less than the median income for your family size in your state you are immediately qualified. Itâs entirely possible that your income when you were working full time was too high to pass this threshold. But, when you add in a couple of months of no income or the typically much lower unemployment income, chances are whatever amount you are receiving is less than the Chapter 7income limits. You can also qualify for Chapter 7 by going through a more extensive calculation if your income is higher than the threshold amount, showing that your ongoing monthly payments and obligations leave little or no money at the end of the month to pay on credit cards or medical bills. If youâre unemployed and your household doesnât have any other sources of income, you likely wonât have to complete the full Means Test calculation.
There can be many benefits to filing Chapter 7 while unemployed. It will offer you significant debt relief right when you need it, by getting rid of your unsecured debts and take away the risk of facing a wage garnishment when you do get back to work.
Can You File For Bankruptcy With No Job
Being in debt is bad enough, but if youve lost your job recently or accumulated debt because of unemployment, you face two battles. Dealing with bankruptcy and unemployment is overwhelming, but can you file bankruptcy with no job?
Its difficult to catch up on debt when you have a steady income. But when there is no money coming in each week or month, chipping away at a large debt is all but impossible.
Can filing for bankruptcy help you if youre in debt and unemployed?
Is Bankruptcy Right For Me
How do you know if you can file for bankruptcy with no job?;In addition to your unsettled job situation, youre also facing a stressful financial situation. Life can feel overwhelming in this situation.
The important thing to remember is that you are not alone. Other people are dealing with challenges similar to your own. There is also expert guidance available to help you make your decision.
Can I File Chapter 13 Bankruptcy If I Am Unemployed
You dont have to be employed to file Chapter 13 bankruptcy. However, you do need a steady source of income to be able to fund the chapter 13 plan. This income could be Social Security, disability, rental income, investment income, unemployment benefits and other sources of income such as family assistance. There is a misconception out there that you have to be employed to be able to file a chapter 13 bankruptcy. This is simply not true. In fact, I have had many cases confirmed where the person had no income from a job but was only receiving Social Security, unemployment, or other types of benefits.
Obviously the success of your chapter 13 case depends upon you making regular, timely payments to a chapter 13 trustee over the course of your plan. You have a greater likelihood of success if you are employed however many clients have succeeded based on Social Security, unemployment, disability and other sources of income. If you are employed, you can have the amount required for your chapter 13 monthly payment deducted directly out of your pay in what is known as a payroll control order. This can be done on any person who is working for wages. If you are self-employed, then you will have to make the chapter 13 trustee payment directly on your own.
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Being Unemployed Can Help You Qualify For Chapter 7 Bankruptcy
Low-income debtors can get a fresh start by wiping out dischargeable debt in Chapter 7 bankruptcy. Not everyone is entitled to a Chapter 7 debt discharge, however. Your earnings must be low enough to pass the Chapter 7 means test. So if you’re unemployed and presumably have little or no income, you’ll likely qualify for Chapter 7 bankruptcy more readily than if you had a well-paying job.
Unemployed And Filing For Bankruptcy What Are The Best Options
Unemployment is one of the top three reasons people file for bankruptcy. No one is ever ready, emotionally or financially, to be laid off or fired. Losing your income can quickly escalate into missed mortgage or car payments. Before things get out of control, consider filing for bankruptcy to help protect your savings and retirement.
Is bankruptcy the best option for me?
Lengthy unemployment forces many people to dip into their savings to meet day-to-day expenses. Filing for bankruptcy offers a powerful lifeline to those individuals with mounting debts. Determining which type of bankruptcy applies to your situation is the first step.
Should I use money from and IRA or 401 to pay debts while unemployed?
Early distributions of funds from retirement accounts creates tax issues and sells out your future. Anyway, money held in qualified retirement accounts is protected from seizure by your creditors in Indiana. It is a bad idea to take distributions from those accounts to service debt at any time, but especially if you are unemployed. Contact Sawin and Shea LLC to discuss your options before you make the mistake of taking an early retirement account distribution to deal with debt.
Do I qualify to file for bankruptcy when I am unemployed?
Are unemployment benefits considered income?
Unemployment benefit income is considered income for the purpose of the income based means test.
Should I file for Chapter 7 or Chapter 13?
Do I have to file for bankruptcy if I become unemployed?
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Exploring Chapter 7 For Coronavirus Debt Relief
If you want to explore Chapter 7 in greater detail, there are several resources that can help. You can check the Chapter 7 Bankruptcy Process to understand how the process works and also take a means test calculator to estimate your qualification.; You may always want to review Chapter 7 Bankruptcy Pros and Cons. The goal is for you to be most informed about your options and the pros and cons of your options
You’ll Need Some Type Of Income To Qualify For Chapter 13
You can still file for Chapter 13 bankruptcy if you’re unemployed. However, if you don’t have employment income, you’ll have to show that you have some kind of income from a verifiable source and that you can afford your plan. Otherwise, the court will dismiss your case.
For instance, an unemployed debtor might have business or rental income that can be used to fund a plan. You can even use unemployment benefits, Social Security funds, or retirement benefits. As long as you can show that you have enough income coming in from some source, then your case will likely get approved by the court.
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Will Unemployment Affect My Bankruptcy Case
Unemployment most likely won’t make a difference in whether or not you can file bankruptcy.
Filing Chapter 7 bankruptcy can be particularly helpful if you’re unemployed, because it’s set up for people who have few assets. If you’re unemployed, that could easily be you because you don’t have any disposable income with which to pay back your debts.
In the case of Chapter 13, bankruptcy while unemployed could get a little trickier. Chapter 13 allows you to set up a payment plan for your debts but that can be difficult if you have no disposable income. Still, depending on your situation even a Chapter 13 is possible when unemployed.
Are you receiving unemployment benefits? In most states including Missouri and Kansas your unemployment benefits are exempt from bankruptcy, meaning you can file for bankruptcy and still not even lose the benefits you need.
If you’re considering filing bankrutpcy;but are unemployed or underemployed, we can help. Castle Law Office has been handling bankruptcies for Kansas City clients from more than 14 years. If you need the fresh start bankruptcy can provide, call us today at 816-842-6200 to speak with an attorney. Or and schedule your free consultation.
Coronavirus Unemployment And Bankruptcy: 5 Things To Know
- Coronavirus Unemployment and Bankruptcy: 5 Things To Know
You may be experiencing unemployment and deciding what to do next. You have options, so in this article, we will provide more specific information about filing bankruptcy and alternative options after being unemployed because of the coronavirus. Many people are facing job loss or temporary layoffs related to COVID-19 as more states impose mandatory stay-at-home orders.;The financial crisis caused by the coronavirus could extend for several weeks or several months. For some individuals, the financial problems caused by the pandemic may result in filing bankruptcy.;
The good news is that many people who did not qualify for Chapter 7 before COVID-19 may qualify for Chapter 7 after the COVID-19 crisis. Through a Chapter 7 bankruptcy filing, you might find the debt relief you need to get back on your feet after being unemployed because of coronavirus.
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Becoming Unemployed When Filing For Chapter 13 Bankruptcy
Chapter 13 requires you to repay debts over a period of 3-5 years, while offering you various tools such as lien stripping or cram-downs of certain loans. It is very difficult to stick to a repayment plan if you are unemployed, even if you are collecting unemployment benefits. In most cases, you should not file for Chapter 13 bankruptcy if you become unemployed. However, your plan may be approved if you can show you have sufficient income from another source, such as rental income or sale of a property, to fund the debt repayment plan.
If you become unemployed after filing for Chapter 13 bankruptcy, you may need to stop making payments. In that case, the court will likely dismiss your case. You will not receive a discharge because you did not complete your plan. Moreover, you will not be able to strip junior liens or use a cram down. However, you may qualify to file Chapter 7 bankruptcy at that point, which takes much less time to complete than Chapter 13. If you do get a job again, and your case has not already been dismissed, you may be able to get back on track with payments. The trustee or court will likely require you to provide documentation that you can afford the plan after all.
You Will Qualify For Chapter 7 If Your Income Is Below The Median
If your income exceeds the median, you may still qualify for Chapter 7 if your income is below an amount set by law.
While the means test is part of the federal law that governs the bankruptcy courts, each state has the ability to set its own standards for the means test so it can compare figures according to circumstances in that state.
Even if you arent able to qualify immediately for Chapter 7 after you lose your job, you may be able to qualify within a few months.
The limited amount of most unemployment benefits will usually be less than the median, and your financial situation may deteriorate while you are unable to pay your bills.
One exception may be if you have other money, such as payments from rental property or retirement benefits that may be counted as income.
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How Do I Take The Chapter 7 Means Test
The Chapter 7 Means Test is comprised of the following bankruptcy forms: 1) Chapter 7 Statement of Your Current Monthly Income 2) Statement of Exemption from Presumption of Abuse Under §707 3) Chapter 7 Means Test Calculation. Many people only need to take the first form, but we will walk you through everything to make sure its clear as it took us a long time to figure this out. First, you should know what your income is in bankruptcy terms. You have information about it above, but you may want to take the following calculator first to help.
Debts You Can Discharge In Bankruptcy
Your overpayment may be one of many bills you owe. Depending on how much you owe and the likelihood that you can or cannot pay your debts, bankruptcy might be a wise decision. A bankruptcy discharge releases you from personal liability for certain kinds of debts.
- Secured debts mean theres collateral involved, like your house or car. You either have to pay to keep your home or car or turn them over to the creditor. A Chapter 7 bankruptcy allows you to give up the property. A Chapter 13 bankruptcy could allow you to extend your payment plan by three to five years.
- Priority unsecured debts lack collateral but must be paid in full during bankruptcy. These include taxes, child support, spousal support/alimony, criminal fines, and personal injury judgments. In Chapter 7 bankruptcy, you sell your assets to pay priority unsecured debts before paying non-priority unsecured debts. If you dont have enough assets to sell and pay off these debts, you might still owe them after completing the bankruptcy process.
- Non-priority unsecured debts such as medical bills, personal loans, past-due utilities, and credit cards can be discharged in Chapter 7 bankruptcy. For a Chapter 13 bankruptcy, you can pay pennies on the dollar before the remainder is discharged.