I’m unemployed. Can I file for bankruptcy?

3,344 families filed bankruptcy using Upsolve.

Written by Eva Bacevice, Esq.  
Updated May 16, 2019

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The short answer here is: yes. You don’t have to be employed to file for bankruptcy. This makes sense since being unemployed is very likely to contribute to an inability to keep up with bills.

The longer answer, which we will explore below, is whether it makes sense to file a case based on your current circumstances.

This article will cover the following:

  • How might unemployment impact my bankruptcy?

    • Being unemployed may help you qualify for a Chapter 7 case

    • Being unemployed may count you out of a Chapter 13

How might unemployment impact my bankruptcy?

1. Unemployment may help you qualify for a Chapter 7 case

It is entirely possible that being unemployed could help you with a bankruptcy, but that is dependent on what is the relief that you are seeking.

If you are hoping to have your debts erased under a Chapter 7 case, being unemployed will likely help you to qualify for this type of bankruptcy. Even if your state counts unemployment as income to include in your Current Monthly Income, chances are whatever amount you are receiving is less than the Chapter 7 income limits.

Things to consider:

  • How long have you been unemployed and how long do you think it will last? If it is very recent and you were making good money before you might not immediately qualify for a Chapter 7 based on your prior income level.

While you cannot answer this second question with complete certainty you can consider a number of things - is there another job on the horizon? Do you work in an industry where there is great need and you can usually find a new job pretty quickly? Or was the loss of your job due to an injury or illness that will require some time to heal?

  • Will you incur more debt before you get another job? A bankruptcy will only assist with existing debt, so if you are facing some large expenses you may want to wait to file.

  • Do you have any other sources of income? Remember that your CMI includes all of your income so if you receive child support, alimony, rental income or some side work it is still possible that you will not pass the means test.

  • Does the timing make sense? Since your CMI is based on your average income over the last six months, you may need to wait a little while to qualify for a Chapter 7. This is especially true for seasonal workers or people who just recently became unemployed. Even though the difference from your prior income to unemployment will feel very drastic immediately, it may not appear that way when averaged over the previous six months. Waiting an additional month or two to file will help your current monthly income to better reflect your current circumstances.

2. Being unemployed may count you out of a Chapter 13

Everything we have talked about above assumes that your aim is to file a Chapter 7 case. But, what if you are looking to file a Chapter 13 instead?

If you are looking for time to catch up on your debts, then you might be considering a Chapter 13 plan to do so. You might be looking to file a Chapter 13 over a Chapter 7 in hopes of catching up on a secured debt for something you want to keep, like your house or your car. In this situation being unemployed will make it much more difficult to file a case.

With a Chapter 13 bankruptcy, the main thing you need to prove in a Chapter 13 is that you have the ability to make the payments to complete your plan. If there is no source of income, you will not be able to show this.

Even if you are receiving unemployment income, this income will only help if: (1) your state allows it to count as “income” in your CMI and (2) the amount you get is enough to cover the payments in your plan, which is pretty unlikely. For most people, being unemployed takes a Chapter 13 option off the table.

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Your ability to file a bankruptcy case is not dependant on your job status.

Being unemployed is a common occurrence when it come to filing for bankruptcy. If you’re unemployed, consider the above factors and information when making your decision. If you are unsure you can always seek the advice of legal aid or a private attorney.

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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