Do I Need to be Employed to File for Bankruptcy?

Employment is not a prerequisite for bankruptcy, but depending on the type of bankruptcy you are filing for, your employment status will have different effects.

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Chapter 7, Chapter 13 and Unemployment

Chapter 7 bankruptcy, for example, will go more smoothly for someone who does not have a job. Chapter 7 bankruptcy is designed for low-income debtors with little to no assets. In most Chapter 7 filings, creditors will not be able to recoup any debts since the debtors do not have any property that the creditors can claim. Because of this, filers for Chapter 7 must pass a means test. If you make less money than the median for your state, you automatically qualify for Chapter 7. If you are unemployed, you will likely pass the means test.

In Chapter 13 bankruptcy, though, you may run into obstacles getting approved. Chapter 13 requires debtors to create a payment plan over three to five years to pay back all or a portion of owed assets. Some bankruptcy filers will opt for a Chapter 13 instead of a Chapter 7 because Chapter 13 offers extra benefits, like the ability to dismiss second mortgages, cram down car loans and pay back nondischargeable debts like child support. A regular income will usually be necessary to make these payments.

This does not mean an unemployed person cannot file for Chapter 13; unemployment benefits, Social Security and other sources of income can be used to fund a plan. If these sources of income are enough to pay your repayment plan, then the courts are more likely to approve.

If you are having trouble deciding on which type of bankruptcy to file, a bankruptcy lawyer can help walk you through the pros and cons of each.

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