Due to the pandemic, the past year has been difficult for many people. During the first shutdowns in the U.S. for the spring of 2020, the unemployment rate spiked from just above 4% to a staggering 15%. Over the following year, that number slowly decreased to around 6%. While that’s much better than 15%, things are still not back to normal. If you’re among that 6% of unemployed people, you might be finding it increasingly difficult to make debt payments on time. For those struggling financially, Behm Law Group, Ltd. can provide legal advice and guidance to file for bankruptcy and permanent debt relief in Jackson, MN. Even for unemployed individuals, bankruptcy can still be a viable option for debt resolution.
The bankruptcy code does not require bankruptcy filers to be employed, even for cases that are typically considered “wage earner” bankruptcy, like Chapter 13 reorganization. However, both your past and present income will affect your eligibility for certain chapters, and there are fees involved in bankruptcy that still need to be paid even though you’re only source of income is unemployment income.
That said, it’s still completely possible for unemployed individuals to find long-term debt relief through bankruptcy. In fact, many Chapter 7 filers are unemployed or are only employed part-time.
How Unemployment Affects Bankruptcy
The main aspect of unemployment and employment that affects bankruptcy is the question of income. To qualify for Chapter 7 bankruptcy, your debt-to-income ratio needs to be lower than the state median or average income of a similarly sized household. This ratio is determined through the Means Test, which examines your income from the past six months. That means if you recently became unemployed, you might not satisfy or pass the means test and be eligible for Chapter 7, even if your income has taken a nosedive. However, even if you don’t pass the means test you might still be able to file for Chapter 7 bankruptcy relief if your recent job loss and loss of income is sufficiently explained in your bankruptcy paperwork.
If you don’t qualify for Chapter 7 with unemployment income, you can potentially file for Chapter 13 bankruptcy relief instead. Like with Chapter 7, much in Chapter 13 bankruptcy is dependent on your income. If you’ve been unemployed for a while, your Chapter 13 plan payments may be as low as $100.00 initially. If you get another job and your income increases, your chapter 13 plan payments could increase.
Eligibility for either chapter all depends on the length of your unemployment relative to the past six months of your income.
Affording Bankruptcy While Unemployed
Bankruptcy court filing fees and the costs of an attorney might make it seem difficult to afford to file for bankruptcy on unemployment income. For those who can’t meet those costs, remember you can always apply to have some court filing fees waived, and there are many attorneys who offer sliding-scale prices for clients who are struggling financially.