Are you dealing with the double battle of losing your job while deeply in debt? Now you’ve lost your source of income while already struggling to pay your bills.

In this situation, you may be wondering whether bankruptcy could be a good solution. After all, it’s nearly impossible to make progress on paying down your debt when you’re unemployed.

Let’s look at how bankruptcy works when you’re unemployed and whether this could be a path to clearing away all that old debt.

Income Requirements for Bankruptcy

Let’s start by clearing up one of the common myths about bankruptcy – that employment is required. In truth, you don’t have to be employed to file for bankruptcy and no rule requires employment for eligibility.

However, Chapter 13 bankruptcy, which is sometimes called “wage earners’ bankruptcy,” usually calls for some type of income to help resolve your debts through a reorganization plan. If you don’t have a job, you’d need some other source of income. Unemployment income can, in some circumstances, act as a temporary stopgap in a Chapter 13, but it is important to quickly get a more steady source of income to ensure eligibility to stay in a plan.

Because you’re unemployed, Chapter 7 bankruptcy might be the best choice for you. Your bankruptcy attorney can help you permanently wipe out your responsibility to pay most types of debts. There are eligibility requirements for Chapter 7 bankruptcy that look at the last 6 months of income and potential asset issues in a Chapter 7 liquidation bankruptcy, so speak with a bankruptcy attorney about your personal situation to determine your best course of action.

Multiple Factors Impact Your Bankruptcy Case

Although losing your job has a huge effect on your emotional, physical, and financial stability, it doesn’t ruin your chances of using bankruptcy to move forward. Other factors influence your bankruptcy case too.

Many of these factors are related to the means test, which is designed to determine whether you qualify for Chapter 7 bankruptcy. If you’re pursuing Chapter 13 bankruptcy, a disposable income test that shows what percentage of your debts the law requires you to pay through a plan.

Factors beyond current employment that may impact your bankruptcy include:

• How long you were previously employed
• Your level of income from your previous job
• Any other sources of income you may have
• The types of debt you have.

Remember, a job isn’t the only source of income that applies here. If you’re getting payments from a previous court settlement, are currently receiving child support, or are taking in rental income as a landlord, that will be factored in too.

Timing Matters with Unemployment and Bankruptcy

Generally speaking, the courts look at the previous six months to determine your income status when it comes to bankruptcy. If you were working a job with a decent salary for most of the past six months, you could be disqualified because of your previous income and your potential for future income. However, all situations are different. The income test can be defeated in some situations. It is best to speak with a bankruptcy attorney to determine your best course of action. Generally, an initial consultation regarding bankruptcy is free, so there is no need to worry about paying out to explore your options.

Please don’t wait to talk to a bankruptcy attorney simply because you question the timing. An attorney can help you understand your situation in both the short term and long term, helping you find ways to improve your financial status more quickly.

Reach out to the bankruptcy attorneys at Sawin & Shea to talk about your options. We’ve helped hundreds of Hoosiers find financial freedom by using bankruptcy to shed old debt, even when they’re unemployed.

Sawin & Shea—Indianapolis Bankruptcy Attorneys

Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of overwhelming debt and advise you on life after bankruptcy. We are here for you during this life-changing process.

Please do not hesitate to call us today at (317) 759-1483 or send an email for a free consultation. We are ready to help.