Unemployment has always been an issue for people but due to the coronavirus pandemic of 2020, millions of Americans have lost their jobs, so the problem has magnified significantly. If you lost your job or your business because of COVID-19, or if you’re unemployed for another reason, you may be wondering if you can file bankruptcy while unemployed.
If you’re unemployed and filing Chapter 7 bankruptcy, the unemployment can actually help you qualify since Chapter 7 is reserved for low-income debtors. However, the length of your unemployment could play a role in the timing of your filing, which we explain below.
The Bankruptcy Means Test
In order to qualify for Chapter 7 bankruptcy, you must first pass the bankruptcy means test, which compares the gross income of your household over the past six months to the median income for the same-size household in Ohio.
If your income in the six months prior to filing bankruptcy is below the state median, you automatically qualify. However, if you just recently lost a high-paying job, your average income in the previous six months may be too high. In this scenario, we may advise you to wait a few months before filing bankruptcy. After someone loses their job, their average household income drops rapidly.
What About Chapter 13?
Chapter 13 is commonly referred to as the “wage earner’s bankruptcy” because it’s for people with regular jobs and incomes. With Chapter 13, the debts are reorganized and the debtor enters into a 3 to 5-year repayment plan. If you’re unemployed and hoping to file Chapter 13 to save your home from foreclosure, you could have trouble qualifying unless you have other sources of regular income. Generally, Chapter 13 is appropriate for employed debtors.
If you’re considering bankruptcy, contact Bridges, Jillisky, Weller & Gullifer, LLC to set up your initial consultation.