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Can I File Bankruptcy if I Recently Lost My Job?


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.

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