It’s not uncommon for people to consider for filing for bankruptcy after losing a job. However, being unemployed can affect the chapter you qualify for. An attorney will be able to review your financial information and help decide if filing is a smart decision. In the meantime, below is a brief overview of how unemployment can affect bankruptcy. 

Can You File for Bankruptcy When Unemployed?

To qualify for Chapter 7 bankruptcy, you must pass a means test that proves your disposable income is too low to pay off debts. If you’re currently unemployed, it’s likely that you will meet this requirement. However, you may not be eligible if you recently lost a high-paying job, as the means test considers anything earned within the last six months, unless you can show a material change in circumstances. 

You can also file for Chapter 13 bankruptcy while unemployed, but only if you can show another type of income that will cover the payments of the debt restructuring plan. This can include unemployment benefits, retirement benefits, or Social Security funds. 

What Happens If You Lose Your Job After Filing for Bankruptcy?

When you file for Chapter 13 bankruptcy, your debt is restructured and you’re required to follow a repayment plan that typically lasts three to five years. Your remaining debt is only discharged after completing this plan, which assumes you will remain employed to meet monthly payments. 

If you lose your job during this time, contact your bankruptcy attorney immediately. They can help you file a modified plan, which asks the court to lower your monthly payment, or motion for a hardship discharge, which asks the court to prematurely discharge some or all remaining debts. 

Your attorney may also recommend converting a Chapter 13 to Chapter 7 bankruptcy. This can be an option if you initially attempted to file for Chapter 7 but did not qualify because your income was too high for the means test. Once unemployed, you may be eligible for Chapter 7.

If you’re unemployed and considering filing for bankruptcy, contact Donald L. Spafford, Jr., Attorney at Law, in Honolulu, HI. With more than three decades of experience, this seasoned attorney has helped countless clients find debt relief and regain control of their finances. Visit the website to learn more about the firm’s capabilities, and call (808) 532-6300 to set up a complimentary consultation today.