Bankruptcy on Unemployment

If you have lost your job and are receiving unemployment, you may be wondering, “can I file bankruptcy while on unemployment?”  Depending upon your other sources of income, if any, you may be able to qualify to file while you are on unemployment.  As an initial matter, treatment of unemployment benefits depends upon what type of San Diego bankruptcy filing is necessary and appropriate for your situation, Chapter 7 vs. Chapter 13.  Each chapter raises its own issues that must be carefully considered when you are receiving any type of unemployment benefits.


In order to qualify to file under Chapter 7, which is straight bankruptcy filed to wipe out your debts and get a fresh start, you must take and pass the Means Test, which assesses your income and expenses and compares your income to the median household income in your state to determine if you qualify to file under Chapter 7. All of your income, from all sources, is factored into the Means Test equation in determining if you qualify for bankruptcy, with the exception of Social Security Income.  If you are on unemployment, your unemployment income counts as income in determining if you pass the Means Test.  And it’s your gross unemployment income before taxes are taken out, if you have taxes automatically taken out of your unemployment benefits.


In order to qualify to file under Chapter 13, you must show, among other things, than you have regular income and your regular income must be sufficient to pay all of your expenses that you propose to pay in your Chapter 13 repayment plan. If your only source of income is unemployment, then in most cases you will have a difficult time qualifying for Chapter 13 relief because you won’t have sufficient regular income to be able to afford to pay all of the expenses that you would be required to repay in a Chapter 13 case.


If you are married and your spouse is employed, then both you and your spouse's combined joint income may be sufficient to qualify for Chapter 13 relief.  Similar to Chapter 7, your unemployment income counts as income for purposes of qualifying for bankruptcy.