Could I Declare Bankruptcy While Being Unemployed?

Losing a job is one of the most common reasons behind personal bankruptcy case filings in the United States. But if you are unemployed you have fewer bankruptcy options and will likely damage your credit rating for the next 10 years if you do indeed file a case.

Chapter 13 is a partial debt repayment plan that requires you to have some type of disposable income. So if you are unemployed you are probably not a good candidate for Chapter 13. There are advantages and disadvantages to not being able to file Chapter 13. First, this type of bankruptcy case damages you credit rating for 7 years. Also, some lenders prefer to deal with potential customers who at least made an effort to partially repay their debts.

If you are unemployed and need to file a bankruptcy case, Chapter 7 is probably your best bet. Exceptions to this rule may apply if you own a lot of property or have significant income from other resources such as investments. If you earned less than your state's annual median income figure in the last year, you automatically qualify for Chapter 7. Otherwise, you can try to prove that your unemployed status makes it virtually impossible for you to cover basic living expenses while partially repaying your creditors.

Chapter 7 will allow you a fresh start in many ways, but is not a cure all for every financial problem you have ever faced. Nor will any type of bankruptcy cover future debts. You cannot include tax bills unless they were incurred more than three years prior to your Chapter 7 filing. Bankruptcy courts will not reduce or eliminate your obligation to pay past, present, or future child support and alimony. If you owe court fines or restitution due to a crime you committed, you still have to make payment arrangements even if you declare Chapter 7. This rule also applies if you were sued in court for a crime such as fraud or drunken driving.

Debts incurred right before filing bankruptcy are usually ineligible for inclusion in your case; in extreme cases such as purchasing luxury items with the intent of defaulting creditors you can be prosecuted for the federal crime of bankruptcy fraud.

Unless you are severely disabled, you will not be able to include government-issued student loans in your case regardless of your employment status. Generally, you can include private student loans and credit card debts in any type of personal bankruptcy case.

Credit Score Resources