If you’re unemployed and dealing with mountains of debt while there’s no foreseeable end to the current pandemic and financial crisis in sight, you’re not alone. Many of our clients ask whether they can file for bankruptcy when they’re unemployed, and the answer is yes—although Chapter 7 bankruptcy is more amenable to loss of employment, Chapter 13 might be a trickier situation to navigate.
Here’s how to navigate bankruptcy filing and unemployment protection in Montgomery County, TX.
Chapter 7 bankruptcy and unemployment
If you don’t have substantial assets, and your income is below a certain threshold, Chapter 7 bankruptcy may be right for you—and new unemployment circumstances won’t affect your case too much. Generally, even if you’re receiving unemployment income from your state, you won’t be put over the median income threshold. Some states don’t consider unemployment income to be a benefit separate from Social Security, so you’ll still need to count that as income in your court filings.
If for some reason your unemployment benefits do put you over the median income standard for your state, talk to an attorney—they can help you figure out the best way to proceed.
Should you be laid off from an industry or position that doesn’t provide standard income—like freelancing work—you shouldn’t worry about Chapter 7 bankruptcy.
Chapter 13 bankruptcy and unemployment
What if you’ve filed for or want to file for Chapter 13 bankruptcy? This is where things get sticky. Chapter 13 bankruptcy is a type of proceeding that lets you hang on to your assets while paying a certain amount of debt, monthly, over three to five years. At the end of the proceeding, your debt is discharged.
If you’re laid off and haven’t filed for bankruptcy yet, filing for Chapter 13 is probably not the wisest decision—you’ll still have to make that monthly payment. If you have another source of income, like proceeds from a rental property, it might be possible for you to meet your payment obligations. Talk to an attorney about your options, because if you fail to pay back your debt, the court can revoke your discharge and leave you to pay the full amount.
If you become unemployed after filing for Chapter 13, you’ll probably need to stop payments for a certain amount of time. In that case, the best thing to do is contact your attorney and bankruptcy trustee immediately to see if there’s some way to protect your case until you secure employment.
Get help with filing for bankruptcy in Montgomery County, TX
When you have a bankruptcy case and are dealing with unemployment, the smartest thing you can do is talk to an experienced bankruptcy attorney. James R. Jones, Attorney at Law is well versed in all types of bankruptcy cases, including dealing with unexpected unemployment. We’re licensed to practice in all state courts as well as the United States District and Bankruptcy Courts in the Southern District of Texas and the United States Court of Appeals for the 5th Circuit. Call us for a consultation.