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Can I File a Chapter 13 Bankruptcy if I am Unemployed?

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In a Nutshell

You do not have to be employed to file a Chapter 13 bankruptcy, but you do have to have the capability to make monthly payments to your trustee.

Written by Attorney Tina Tran
Updated July 22, 2020

Short Answer: Yes. Nowhere in the United States Bankruptcy Code does it say you have to be employed, or unemployed, for that matter. However, your past and present employment history will matter in determining the type of bankruptcy you file, whether it be a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

In this article, we’ll cover:

  • How is a Chapter 7 Bankruptcy different from a Chapter 13 Bankruptcy?

  • Will my employment status affect the type of Bankruptcy I’m eligible for?

  • What impact will my employment status have on my Bankruptcy case?

How is a Chapter 7 Bankruptcy different from a Chapter 13 Bankruptcy?

A Chapter 7 bankruptcy works differently than a Chapter 13 bankruptcy. A Chapter 7 bankruptcy is often referred to as a “fresh start” bankruptcy or a “liquidation” bankruptcy.

This is because non-exempt assets (assets that are not protected by exemption laws) get liquidated by the Trustee assigned to your case. In a Chapter 7, your Trustee sells your non-exempt assets and the proceeds go toward repaying your debts.

In many cases, people who file for Chapter 7 bankruptcy do not have assets that the Trustee can liquidate. If you have no assets to liquidate, a Chapter 7 gives you the benefit of a fresh start free from debt.

Chapter 7 bankruptcy laws are designed to help low-income or unemployed individuals get out of debt and reclaim their financial freedom without having to pay back what they owe to unsecured creditors.

How a Chapter 13 Works:

In comparison to a Chapter 7 bankruptcy, a Chapter 13 bankruptcy requires you to repay at least a portion of what you owe to your creditors. You will be required to make monthly payments for a period of 3-5 years.

Your Trustee is responsible for distributing your payments to your creditors until the end of your Chapter 13 case, when the bankruptcy judge signs your discharge order and your case is closed.

Unlike how Chapter 7 bankruptcy laws favor low-income or unemployed debtors, Chapter 13 bankruptcy laws require that you have some source of income. People file for Chapter 13 bankruptcy when they either don’t qualify to file for a Chapter 7 bankruptcy, or because they have non-exempt assets they want to keep.

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Will my employment status affect the type of Bankruptcy I’m eligible for?

Each type of bankruptcy has different eligibility requirements. To qualify to file a Chapter 7, you must pass the “means test.” The means test is a two-part test. The first part compares your average monthly income from the past 6 months against the median income for your household size in your state.

If your income level is below the median, you qualify to file for a Chapter 7 without having to go on to the second part of the test. If it isn’t, the second part asks you to calculate your disposable income.

To calculate your disposable income, you take your gross income and subtract the allowable expenses. Allowable expenses can include mandatory income deductions, housing and child care costs, etc. If your disposable income is not enough to make a meaningful monthly payment to your creditors, you will pass the means test.

If you do not pass each part of the two-part means test, you will not be eligible to file for a Chapter 7.

What impact will my employment status have on my Bankruptcy case?

Because your disposable income must be low enough to pass the means test to qualify to file a Chapter 7, being unemployed can make you more likely to be eligible.

When you are unemployed, you presumably have little to no income. Without sufficient income, you will be unable to pay back your debts.

By having insufficient income and passing the means test, you will qualify to have your unsecured debts discharged in a Chapter 7. Unsecured debts are debts that are not connected to any type of collateral or property. They include credit card debt, medical bills, and payday loans.

If you have a no-asset case, you will be entitled to a fresh start under Chapter 7 bankruptcy laws. This means that other than potentially having to pay to file your Chapter 7 petition, you will not have to pay your unsecured creditors.

How does my employment status impact my Chapter 13 case?

Because Chapter 13 requires you to make monthly payments to repay all or a percentage of your debt, not being employed can make it very difficult if not impossible for your Chapter 13 case to succeed.

Chapter 13 cases are most effective for people with regular employment income. Nonetheless, being employed is not a requirement.

As long as you have income from other verifiable sources sufficient to afford your monthly payment, your Chapter 13 case will be approved even if you are unemployed. If not, your Chapter 13 case will get dismissed.

Your income will play a factor in how much your monthly Chapter 13 payment will be. Verifiable sources of income can be from social security, unemployment, or outside contributions.

In conclusion, you can file for bankruptcy whether or not you are employed.

Deciding to file, if and when, you are unemployed will depend on your individual set of circumstances.

You may want to consider how likely it is that you will incur more debt in the time you are looking for employment. If there’s a possibility that you will incur more debt, you may want to hold off on filing.

You may also want to consider how likely you will qualify for a Chapter 7 once you are employed again. If the likelihood is high that you will become ineligible to file a Chapter 7, doing so while you are unemployed might be the most beneficial option.

Written By:

Attorney Tina Tran


Tina Tran is the managing bankruptcy attorney for Upsolve, the largest consumer bankruptcy non-profit in the United States. She received her Juris Doctorate degree and Certificate in Advocacy from Loyola University Chicago School of Law. She is licensed to practice law in Illinoi... read more about Attorney Tina Tran

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