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Bankruptcy exists to provide relief when people are in a tough financial situation. Individuals, or married couples filing jointly, can file for either Chapter 7 or Chapter 13. Chapter 7 bankruptcy is what you think of as a “traditional” bankruptcy, where you can walk away from some (or all) of your debts. There is nothing to stop you from filing Chapter 7 while unemployed. Being unemployed is one of the main causes for many people to file for Chapter 7 bankruptcy. Chapter 13, however, is a personal reorganization that requires a payment plan and therefore a regular source of income. We will discuss how to file bankruptcy with no money further below:
You Don't Need A Job or Any Income to File Bankruptcy
Your ability to file a bankruptcy case is not dependent on your employment status. Being unemployed is a common cause when it comes to reasons to file bankruptcy, and it is possible to file bankruptcy with no money. Being unemployed certainly qualifies as a situation where you might need debt relief. After all, it’s likely causing (or at least contributing to) an inability to keep up with monthly payments on your credit cards or medical bills. If you’re unemployed, consider the factors and information discussed below when making your decision. If you’re unsure, you can always seek the advice of legal aid, a bankruptcy attorney, or the resources and information about the decision to file available in Upsolve’s Learning Center.↑ Back to top
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Unemployment and Chapter 7 Bankruptcy
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 (Current Monthly Income or “CMI”) is less than the median income for your family size in your state you are immediately qualified. It’s 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 (called the “Means Test”) 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 you’re unemployed and your household doesn’t have any other sources of income, you likely won’t 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 (like credit cards and medical bills) and take away the risk of facing a wage garnishment when you do get back to work.
Being unemployed may count you out of Chapter 13
You might be looking to file a Chapter 13 over Chapter 7 in hopes of catching up on asecured debt for something you want to keep, like your house or your car. With a Chapter 13 bankruptcy, the main thing you need to prove is that you can make the payments to complete your plan. If you file bankruptcy with no income, then there is no source of money you can pay. Even if you are receiving unemployment income, this income will only help if the amount you get is enough to cover the payments in your plan, in addition to your regular monthly living expenses, which is pretty unlikely. For most people, being unemployed takes the Chapter 13 option off the table.↑ Back to top
Things to consider when filing bankruptcy while unemployed
While there is no bar to filing Chapter 7 while unemployed you should be thoughtful about your timing. Specifically, consider how long have you been unemployed and how much longer 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 bankruptcy based on your prior income level. If you can’t reasonably predict how long you will be unemployed you might consider several things - is there another job on the horizon? Do you work in an industry where there is a 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? If so, are you still facing more medical bills? A bankruptcy will only assist with existing debt, so if you are facing some large expenses you may want to wait to file.
Also keep in mind when you file bankruptcy with no money that your CMI is based on your average income over the last six months. This means that you may need to wait a little while (perhaps a month or two without income or lower income) to have your CMI average qualify you r a Chapter 7 bankruptcy. Even though the difference between your prior income and 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.↑ Back to top
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Filing bankruptcy with no money while being unemployed is an option
As discussed above, filing Chapter 7 while unemployed is an option and is not an unusual occurrence. Bankruptcy exists to help everyday people with debt relief when they need it the most. While it is possible to file bankruptcy with no money, you should be careful about when to file based on your particular circumstances. If you are not certain what timing is best, you can always consult a bankruptcy attorney or partner with a nonprofit like Upsolve for assistance.↑ Back to top