Bankruptcy and Unemployment
Our Montgomery bankruptcy attorneys often hear people say that they can't file for a bankruptcy because they are unemployed. This is simply not true. There is no requirement that you must be employed in order to file a bankruptcy. In fact this would make little sense because job loss is one of the most common reasons that people file bankruptcy; however there is no doubt that being unemployed can still affect the outcome and success of a bankruptcy especially a Chapter 13 debt consolidation plan. The status of your unemployment will greatly affect which plan might be right for you. In other words should you file a Chapter 7 or Chapter 13 will depend in part on your employment status.
Filing a Chapter 7 bankruptcy while being unemployed is far easier than filing a Chapter 13 debt consolidation plan. A Chapter 7 is designed to eliminate all of your unsecured debts such as medical bills, credit cards, collection accounts, or old auto repossessions. A Chapter 7 is especially helpful for debtors who have a low income or have little or no assets. In a Chapter 7 bankruptcy debtors must pass a means test to qualify for the Chapter 7. The means test compares the debtor’s income to Alabama's median income for a similar household. In other words, if the debtor has four people in his household it compares that household to the median income for an Alabama family of 4. If the debtor's income is below the Alabama median income, then that debtor automatically qualifies for a chapter 7. Most unemployed debtors have little or no income, and if they draw their unemployment benefits they are always well below Chapter 7 income limits; therefore, if the debtor is unemployed it usually makes it far easier to qualify for Chapter 7 bankruptcy. The one caveat is that most unemployed people do not have the ability to pay the court cost and fees associated with filing a Chapter 7 bankruptcy plan. If this is the case, then possibly a Chapter 13 debt consolidation is their best option.
In a Chapter 13 debt consolidation plan the debtor will pay back all, part, or none of their unsecured debts through the plan over a period of three to five years. The Chapter 13 will allow the debtor to catch up on car payments, house payments, child support, or taxes. Usually in the Chapter 13, the debtor will discharge all of his unsecured debt such as medical bills, collections, or credit cards. A Chapter 13 is a much stronger tool than a Chapter 7 because of the added benefit of being able to keep your secured debt. If you are in a Chapter 13 debt consolidation plan you are required to make monthly plan payments to the Chapter 13 Trustee. In order to have your plan confirmed by the bankruptcy judge, it is imperative that we show to the court that the debtor is able to make these regular plan payments. However if the debtor is unemployed it may be difficult to prove to the Court that the debtor can make the payment. If the debtor is drawing his unemployment benefits or has other income in his household. then it is quite likely that we can prove to the Chapter 13 Trustee and the Court that the Chapter 13 plan payments can be made. If we can show that there is enough income coming in from other sources then the Chapter 13 plan will likely be confirmed
Our Montgomery bankruptcy attorneys tell perspective clients that the best way to determine if they would qualify for a Chapter 7 bankruptcy or Chapter 13 debt repayment plan if they are unemployed is to simply set an appointment and come in and meet with one of our local attorneys and discuss all options. We have four offices which are located in Montgomery, Selma, Greenville, and Troy. All consultations are always free, and we can usually see you within 24 hours. Call us at 334-LAWYERS (529-9377) to set an appointment. You may also use the “text us” link of Contact Form on our website. Remember that doing nothing changes nothing so act today!