Can the Unemployed File for Bankruptcy?

Posted on December 21, 2016 at 12:00pm by
Avoiding student loan defaults after job loss.

Debtors who are unemployed and being hounded by creditors may benefit from filing for bankruptcy. This can allow people who are unemployed the opportunity to protect assets, discharge debts and temporarily freeze collection attempts.

Depending on the circumstances, unemployed filers can benefit from Chapter 7 or Chapter 13 bankruptcy.

  • Chapter 7 bankruptcy: Unemployed people may have an easier time filing for Chapter 7 bankruptcy. That is because to file for Chapter 7, a debtor must pass the means test, which compares his or her household income with the median state income for similar households. An unemployed person with more unsecured debts (medical bills, most credit cards) than secured debts (mortgage, vehicle) may benefit by filing for Chapter 7 bankruptcy.
  • Chapter 13 bankruptcy: Depending on the circumstances, it may be possible for an unemployed person to file for Chapter 13 bankruptcy. People with secured debts may benefit the most from this option. However, the debtor must be able to afford the Chapter 13 payment plan. For Chapter 13, some type of income is required. Social Security payments, unemployment benefits, passive income (like renting out property) are all examples of income that might be expected by the bankruptcy court.

Can Filing for Bankruptcy Hurt Your Ability to Find Employment?

Many people who file for bankruptcy are concerned about how their credit scores will impact their ability to find jobs. By waiting to file for bankruptcy, people may be doing more damage to their credit scores in the long run. Also, some employers do not check credit scores or whether an applicant has filed for bankruptcy.

Remember, there is no such thing as a permanent credit score. These scores can improve by making payments on time and committing to other practices that show financial stability. Check out our recent blog on this subject written by one of our attorneys.

The Kansas City bankruptcy attorneys at The Sader Law Firm can help you discover options for resolving difficult financial situations.