Are you facing financial difficulties because of unemployment? Has the burden of debt become overwhelming? If you’re thinking about filing for bankruptcy, you may wonder how your unemployment status affects the process.

In this article, we will look at common concerns about filing for bankruptcy while unemployed and provide insights into how being unemployed may have on your bankruptcy proceedings.

Understanding the Different Bankruptcy Chapters

Before we delve into the specifics of filing for bankruptcy while unemployed, it’s crucial to understand the two primary bankruptcy chapters: Chapter 7 and Chapter 13. Each chapter offers distinct benefits and considerations, and choosing the right one depends on your unique financial situation.

Chapter 7 Bankruptcy:

Chapter 7 bankruptcy is often called a “straight” bankruptcy. It is designed for individuals with low income and significant unsecured debts, such as credit card debt, medical bills, and personal loans. Filing for Chapter 7 allows debtors to discharge these debts entirely without having to pay creditors anything,providing quick relief from overwhelming financial obligations.

Chapter 13 Bankruptcy:

Unlike Chapter 7, Chapter 13 bankruptcy involves a debt reorganization process. Debtors, typically with a steady income, can create a repayment plan spanning three to five years. This plan allows them to gradually repay their debts, often at a lower rate, and receive a discharge of any remaining debt after they complete the repayment plan.

Filing for Bankruptcy While Unemployed

The good news is that being unemployed does not prevent you from filing for bankruptcy. However, your employment status can influence the specific bankruptcy chapter you qualify for and the implications it may have on your case.

Chapter 7 and Employment

With Chapter 7 bankruptcy, your employment status primarily affects the means test. Qualifying for Chapter 7 bankruptcy depends on your income. The means test is used to determine eligibility by comparing your income to the median income for your state. If your income is below the median, you will likely qualify. If it exceeds the median, you will need to deduct allowable expenses to determine your disposable income.

To pass the means test, you will need to calculate your total income for the six months preceding your filing date. If this amount is below the median income, you may qualify for Chapter 7. If it is above the median, you deduct certain expenses to determine your disposable income. If you do not have sufficient disposable income to make meaningful monthly payments to creditors, you will pass the means test and may qualify for Chapter 7 bankruptcy.

Chapter 13 and Unemployment

Chapter 13 bankruptcy requires a steady source of income to create a workable repayment plan. If you are unemployed and lack a regular income, qualifying for Chapter 13 can be challenging. However, other sources of verifiable income, such as rental income, social security benefits, pensions, or unemployment benefits, may still allow you to meet the requirements.

Factors to Consider

While filing for bankruptcy may seem like a viable option, there are a few important factors to consider when you are unemployed:


Timing is crucial when filing for bankruptcy while unemployed. If you anticipate securing a new job soon, it may be beneficial to wait until you have a regular income before initiating the bankruptcy process. A new job with a higher salary could affect your eligibility for Chapter 7 and potentially lead to a shift to Chapter 13.

Debt Accumulation

If you are unemployed and continue to accumulate new debts, it is essential to carefully assess your financial situation. Filing for bankruptcy and subsequently accumulating new debts within a short period can have long-term consequences. Bankruptcy should be viewed as a fresh start, and it is crucial to manage your finances wisely post-bankruptcy to avoid falling into the same debt cycle.

Getting Help Filing Bankruptcy

Understanding the complexities of bankruptcy law can be difficult, especially when you are unemployed and facing financial stress. Seeking professional legal advice from an experienced bankruptcy attorney can help you make informed decisions and understand the implications of filing for bankruptcy while unemployed. A bankruptcy lawyer will assess your financial situation, determine your eligibility, and guide you through the entire bankruptcy process.

Brock and Stout’s bankruptcy lawyers have over 27 years of experience helping clients get a financial fresh start. Contact us today for a free evaluation of your financial situation to see if we can help you get a financial fresh start.