Filing Bankruptcy While Unemployed: What You Need to Know

You can file Chapter 7 bankruptcy even if you’re unemployed or have no income. Many people do. Unemployment benefits usually won’t disqualify you from filing. Some costs, like court fees, may be waived if your income is low enough. Filing triggers an automatic stay that protects you from wage garnishment and collection calls. You can focus on getting back on your feet. Timing matters, though. Filing too soon could leave you with new debt you can’t discharge later.

Filing Bankruptcy Without a Job

You don’t need to be employed to file Chapter 7 bankruptcy. Many people who are unemployed, retired, or stay-at-home parents file bankruptcy successfully. Job loss is one of the most common reasons people fall behind on bills.

You can file Chapter 7 bankruptcy even if you’re unemployed. You just need to meet the eligibility requirements.

Filing Bankruptcy With No Income

Yes, you can file with no income. Some filers’ only income comes from unemployment benefits or government assistance. Other filers’ only income comes from retirement sources like Social Security.

Some people report no income at all. There are income limits to file Chapter 7, but having no income doesn’t disqualify you.

Chapter 13 bankruptcy is different. You need regular income to make monthly payments as part of a repayment plan.

How Bankruptcy Protects You While Unemployed

When you file for Chapter 7 bankruptcy, the automatic stay goes into effect immediately. The automatic stay is a court order that stops most debt collection efforts.

Creditors must stop calling you, sending letters, filing lawsuits, and garnishing your wages.

The automatic stay is especially helpful if you’re unemployed and actively looking for work. Constant debt collection calls can make it stressful to answer the phone. You might be waiting to hear back from potential employers. The automatic stay gives you breathing room to focus on your job search.

Federal law limits when and how debt collectors can contact you. The Fair Debt Collection Practices Act (FDCPA) provides these protections. Bankruptcy strengthens those protections. If a debt collector contacts you after you’ve filed, they may be violating the court’s order.

Before you can file bankruptcy and get the protection of the automatic stay, you must pass the means test.

How Unemployment Income Impacts the Means Test

Most people need to pass the means test to qualify for Chapter 7 bankruptcy. The means test looks at your income over the past six months.

If your income is at or below the median income for your household size in your state, you’ll likely qualify.

Unemployment benefits count as income on the means test. In most cases, they aren’t high enough to push you over the income limit.

The means test looks at all income (except Social Security) from the six months before you file. If you’ve been unemployed for more than six months, your income might be low enough to qualify easily.

If you lost a high-paying job recently, your income during that six-month window might still be too high. You may need to wait to file your case.

Bankruptcy Costs When You’re Unemployed

You may still be able to afford bankruptcy even without income. The biggest costs are the court filing fee, credit counseling courses, and attorney fees.

There are ways to save on all these fees:

• Many Chapter 7 filers are eligible for a filing fee waiver. If you qualify, you won’t have to pay the $338 filing fee.
• There are also filing fee waivers for the two required bankruptcy courses.
• You can speak with a bankruptcy attorney for free to understand your options and potential costs.

Why Timing Your Bankruptcy Filing Matters

If you’re unemployed and thinking about filing bankruptcy, consider the timing carefully.

Filing too early could leave you in a tough spot. You might need to take on more debt before your income stabilizes. You can’t file another Chapter 7 for eight years. New debts you take on after filing aren’t included in your current case.

If your unemployment benefits aren’t enough to cover basic living expenses, you may use credit cards or loans. If you take on new debt after filing your case, it won’t be wiped out. You could find yourself back in debt with no easy way out.

Be aware that lump-sum payments can complicate your case. A large back-payment of unemployment benefits may count as cash. The bankruptcy trustee could claim it unless it’s protected by an exemption in your state.

Chapter 13 Bankruptcy While Receiving Unemployment Benefits

Chapter 7 and Chapter 13 are the two most common types of bankruptcy for individuals. Chapter 7 is often the simpler option for people with low or no income. Some people file Chapter 13 because they earn too much to qualify for Chapter 7. Others use it to catch up on missed mortgage or car loan payments.

Filing Chapter 13 can be challenging if you’re unemployed. Chapter 13 requires you to have steady income. You must use your disposable income to make monthly payments toward your debts. These plans usually last three to five years.

If your only income is from unemployment benefits, you may not have enough money. The court could dismiss your case or convert it to a Chapter 7. Most people who are unemployed or have limited income file Chapter 7 instead.

Common Questions About Bankruptcy and Unemployment

What Happens If I Get a Job After Filing Chapter 7?

Getting a job after you file Chapter 7 usually doesn’t affect your case. Chapter 7 looks at your income from the six months before you file. Not what happens afterward.

If you start working again while your Chapter 7 case is in progress, be prepared to tell your bankruptcy trustee about the change in income if they ask.

Can Bankruptcy Prevent You From Getting a Job?

In most cases, no. Private employers have more flexibility, but most don’t run credit checks. They only check credit if the job involves handling money or sensitive financial data.

Federal law prevents government employers from firing or refusing to hire someone because they filed bankruptcy. For most job seekers, bankruptcy isn’t a deal-breaker. Getting a fresh start can even help you get back on track professionally.

Can You Lose Your Job If You File Chapter 7?

No, you can’t be fired just for filing Chapter 7 bankruptcy. Federal law protects employees from being let go because they filed for bankruptcy. If you work for a government agency, these protections are even stronger.

Private employers generally can’t fire you solely because of your bankruptcy filing. They may still run credit checks for certain positions, especially if the job involves managing money.

In most cases, filing Chapter 7 doesn’t affect your current job at all. For many people, it actually reduces stress. It makes it easier to stay focused at work.

Can Bankruptcy Clear Unemployment Debt?

Sometimes. If you received an overpayment of unemployment benefits, that debt may be dischargeable in bankruptcy. The state is asking you to repay it. The debt is especially likely to be discharged if it wasn’t caused by fraud.

In Chapter 7, many people have successfully discharged unemployment overpayment debt. It’s treated like credit cards or medical bills.

Each case is different. If your state claims you committed fraud or misrepresented your earnings, the debt may not be eligible for discharge.