Unemployment has always been an issue for people, but in light of the coronavirus
pandemic of 2020 (COVID-19), we have had a surge of unemployment since
March of this year. Some industries were hit particularly hard, especially
those involving travel, tourism, hospitality, entertainment, and other
“non-essential” businesses. It’s as if since President
Donald Trump declared a national emergency in the middle of March, the
economy has come to a grinding halt.
If you’re recently unemployed because of COVID-19 or for an unrelated
reason and you’ve been falling behind on your bills, you may be
considering filing for
bankruptcy relief, but the question is, can you file for bankruptcy if you’re
unemployed?
What You Need to Know About Employment Status
The bankruptcy rules don’t specifically state that a debtor has to
be employed to qualify; however, your average income in the past six months
can affect your ability to qualify for
Chapter 7. If you’re unemployed and don’t have any other source of income,
you may not qualify for
Chapter 13 because you’d be required to make monthly payments for 3 to 5 years,
which is impractical if you don’t have income.
If you were earning a lot of money and you recently lost your job, you
may not qualify for Chapter 7. On the other hand, if you want to file
a Chapter 13, your unemployment status will disqualify you because you
won’t be able to enter a repayment plan.
Here are the types of questions we’d ask you:
- How long have you been unemployed?
- How much did you earn at your most recent job?
- Are you starting another job soon?
- Do you have another source of income, such as disability benefits, child
support, spousal support, workers’ compensation, a pension, retirement
benefits, rental income, etc.?
- Do you plan on filing Chapter 7 or Chapter 13?
As we mentioned earlier, it can be difficult to qualify for Chapter 13
if you’re unemployed, but if you want to file Chapter 7, the unemployment
may actually help you qualify, but it depends on the timing. To qualify
for Chapter 7, you must pass the
means test, which compares the income of all family members during the six months
prior your filing date to the state’s median income for a household
of your size.
If the total is below California’s median income, you automatically
qualify. If the unemployment is too recent, your attorney may advise you
to simply wait a few more months before filing. As people remain unemployed,
their six-month average income drops rapidly.