Unemployed & Broke: Can You File For Bankruptcy?
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
Yes, you can file for bankruptcy even if you are unemployed.
However, if you want to file for a Chapter 13 Reorganization Plan, then being unemployed may create some challenges, please discuss with an attorney specializing in Chapter 13.
If you are unemployed, a Chapter 7 (liquidation) bankruptcy should go smoothly for you. But if you are filing a Chapter 13 (reorganization) bankruptcy, then the trustee may not approve your filing because you don't have income to make your plan payments.
Chapter 7 Bankruptcy
The purpose of Chapter 7 (liquidation) bankruptcy is to erase unsecured debts, such as those to credit card companies and medical providers. Chapter 7 is typically used by low-income debtors who have few if any assets. Most often, creditors in a Chapter 7 filing do not receive any money because the debtor's assets are so low, they fall within the bankruptcy exemption. This means the trustee cannot seize and sell the assets.
Since creditors usually receive nothing in a Chapter 7 filing, debtors must take and pass a " means test" before they can qualify to file for Chapter 7 bankruptcy. If your income is below the state's median income for a comparable household, then you qualify automatically. However, if your income is above the median, then you must prove that you have high permitted expenses leaving no disposable income.
In most cases, debtors who are not employed have no income or receive unemployment benefits, either of which is far under the Chapter 7 income limits. So if you're unemployed, you should easily qualify to file a Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Debtors who file a Chapter 13 bankruptcy (reorganization) have a period of three to five years to pay off their creditors. This gives debtors time to bring their mortgage payments current, erase a second mortgage, or get current on nondischargeable debts, such as taxes and child support.
People who file for Chapter 13 bankruptcy are usually either (1) those who don't qualify for Chapter 7, or (2) those who want a Chapter 13 because of its benefits. Under Chapter 13, you are required to make monthly payments to the bankruptcy trustee. This is why Chapter 13 is typically used by debtors who have regular income.
Even so, some people without a job can still file for Chapter 13 bankruptcy. These include people who receive unemployment benefits or social security. Also, people who have other sources of income not related to employment. The bankruptcy court will probably approve your Chapter 13 plan if you can show that you have sufficient income to make the plan's payments.
If you become employed during your bankruptcy, then the court or trustee will require that you notify them and provide appropriate paperwork.
If you're out of work and can't pay your bills, please give me a call. As an experienced Illinois bankruptcy attorney, I can help you find the right solution to your money problems, and advise you on whether Chapter 7 or Chapter 13 bankruptcy is the right choice for you. My Chicago law office offers a wide range of legal services, including bankruptcy, debt consolidation and credit repair, and mortgage and loan refinancing. Please call today and start building a secure financial future.