Can I File for Chapter 7 Bankruptcy if I am Unemployed?
Yes, you can file for bankruptcy if you are unemployed. As we’ll see later in this post, it can actually be easier to file bankruptcy if you have low income.
Many people are hesitant to file bankruptcy. Yet, the whole purpose of bankruptcy is to help people get back on their feet financially. Times may never be tougher than when you are unemployed, so why not file? This article explains when you qualify for Chapter 7 bankruptcy during unemployment, and will help guide you toward an understanding of what will get you back on track.
However, this bankruptcy discussion is in general terms, and every bankruptcy case is unique. Therefore, it is advised that you consult an experienced bankruptcy attorney before taking any action.
Chapter 7 Bankruptcy
First and foremost, what is Chapter 7 bankruptcy? In Chapter 7, the court takes inventory of your property to see if there is anything of sufficient value to sell. This means that a bankruptcy trustee will be appointed by the court to review your assets. This doesn’t happen literally, the trustee won’t come to your home and look under the bed. They review the list of property you file with the court to see if there is any non-exempt property. Before you get too worried, its important to point out that most people emerge from bankruptcy with all of their property intact, including their home and retirement. Once it has been determined that you don’t have anything to give to creditors, the bankruptcy court then forgives the rest of your debts, and you get a fresh start. Chapter 7 bankruptcy is the most common form of bankruptcy because it is the quickest bankruptcy process, often taking only a few months.
For more information on Ohio bankruptcy laws, click here.
How Do I Qualify for Chapter 7 Bankruptcy?
The simple fact that you are unemployed NOW actually means very little in determining whether you qualify for Chapter 7 bankruptcy. What really matters is your income over the last 6 months. Chapter 7 bankruptcy employs what is known as the “means test,” which uses your income to determine whether you qualify.
Chapter 7 Means Test
The Chapter 7 means test compares your household income to the median (not the average) household income in Ohio. If your income is at or below the median income for Ohio, then you qualify for Chapter 7 bankruptcy. Thus, being unemployed may actually help you to qualify because you will have no income.
The means test only comes into play if your income is above the Ohio median for a household of similar size. If your income is below Ohio’s median, you’re presumptively entitled to file for chapter 7.
Note, however, that the income calculation uses your income over the past six months. Therefore, if you just lost your job, even though you have no current income, your income for the past six months may be higher than the median income of your state. In that case, it may be a few months before you qualify for Chapter 7 bankruptcy.
If you earn more than the Ohio media for a household of similar size, the the means test comes into play. There are a few situations where you may be able to file Chapter 7 bankruptcy even though you earn above the median:
- Low Disposable Income: Disposable income is the money that you have left over after paying certain, “allowable” expenses (things like taxes and child support). If your income is low enough after allowable expenses have been subtracted, you may still qualify for Chapter 7 bankruptcy.
- Special Circumstances: If you present one or more “special circumstances” to a bankruptcy court, you may still qualify for Chapter 7 even though your income is too high. There are a variety of special circumstances. Some examples include: high medical expenses, military service, or unemployment. Thus, your recent job loss may present a special circumstance.
Several sources of income in addition to your job income are taken into account when assessing your qualifications using the means test. Income from spousal or child support payments that you are receiving, worker’s compensation, tips, received annuity payments, and several other forms of income are included in the calculation.
Moreover, there are some forms of income that are excluded from the means test calculation. Examples of these sources include social security retirement and disability benefits.
Please note that calculating your income, disposable income, or special circumstances using the means test can be very complicated. To properly assess your qualifications, you should speak with an attorney.
What if I Don’t Qualify for Bankruptcy Under the Means Test?
If you do not qualify for Chapter 7 bankruptcy, then you may still be eligible for Chapter 13 bankruptcy. In fact, in many cases where the court disqualifies a person under Chapter 7, they may simply convert the case into a Chapter 13. In Chapter 13 bankruptcy, you pay off your debts over an extended period of time according to a “repayment plan.” Thus, if you have too much income for Chapter 7, that income can be put to use in following a repayment plan.