Can You File for Bankruptcy If You Lose Your Job?

Unemployment and Bankruptcy

Table of Contents

Are you unemployed and unable to handle your monthly bills? You may be worried about filing for bankruptcy protection while unemployed. In fact, there may be no better time to liquidate the bulk of your debts and start over financially. It’s vital to consult a bankruptcy attorney before making any decisions, but there are a number of reasons that being unemployed should not stop someone from filing for bankruptcy protection in Missouri or Southern Illinois.

Limitations Because of Unemployment in Bankruptcy

There are two types of personal bankruptcy filings. Under Chapter 7, the debtor is generally able to liquidate the bulk of all debt, such as credit cards, with a few exceptions. Under Chapter 13 bankruptcy, the debtor creates a plan to repay debtors over a period of time. The bankruptcy court is unlikely to accept a Chapter 13 filing if a debtor can’t show a steady flow of income. An inability to file for Chapter 13 won’t affect most people because the overwhelming majority of personal bankruptcy filings are in Chapter 7.

Chapter 7 Vs. Chapter 13

Nearly 70 percent of all debtors choose Chapter 7 over Chapter 13, according to 2011 bankruptcy court statistics. A trained bankruptcy attorney can examine your financial situation to be certain Chapter 7 is the right choice. For most debtors, Chapter 7 is preferred because the process is much faster. In virtually all cases, the repayment plan in Chapter 13 is five years. With an uncomplicated Chapter 7 case, a debtor could be discharged in as little as four to six months after the initial filing.

The Cost of Bankruptcy

It’s important for debtors to have enough money to pay for filing costs and attorneys fees. As of November 2011, the filing fee in bankruptcy court for a Chapter 7 filing was $306. That doesn’t include the fees to a bankruptcy attorney. Most bankruptcy attorneys will provide a free initial consultation and will outline a number of issues, including attorney’s fees.

The Benefits of Being Unemployed

In order to qualify for a Chapter 7 bankruptcy, debtors must earn less than the average salary of all residents in their state. For a debtor without a job, that should not be difficult. The test involves a three-year review of income, so debtors should provide their bankruptcy attorneys with proof of any income earned for the previous three years to make sure qualifying for Chapter 7 is not an issue.

Another benefit of being unemployed may be more emotional. Filing for bankruptcy can be a difficult step for many people. However, for someone out of work and unable to pay his or her monthly obligations, bankruptcy can be the first step in turning around a difficult financial situation.

Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.


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