Filing Bankruptcy When Unemployed

Financial struggles will make you look for all possible ways out of the situation. Bankruptcy is one of the options that Arizona residents consider when they’re overwhelmed by debt. The bankruptcy terms and conditions are often misunderstood and one common question focuses on whether filing bankruptcy when unemployed is possible.

Bankruptcy Chapters and Unemployment

For a start, bankruptcy is a general term but there are several chapters under which Arizona residents can file. Chapter 7 and Chapter 13 are the most popular options.

Depending on the circumstances, unemployment could make the bankruptcy filing easier. This is especially true for Chapter 7 bankruptcy.

Chapter 7 bankruptcies get rid of unsecured debt. To qualify, an individual will have to pass the Arizona means test. This means that their income has to be below the median for the state. An unemployed individual will find it easy to pass the test and qualify for debt liquidation under a Chapter 7 filing.

Chapter 13 bankruptcies are different. They aren’t a way to discharge but rather to restructure debt. A repayment plan will be drafted on the basis of disposable income. The length of the repayment plan will be anywhere between three and five years.

This type of bankruptcy is generally considered available to individuals who have a regular, steady source of income. Otherwise, making the necessary payments is going to be a challenging task and the debtor may eventually fall behind.

If you are unemployed and you don’t have another source of income, you will probably be turned down for a Chapter 13 filing. Having a source of income like a rental property, for example, is going to lead to a completely different outcome. Regular and steady income doesn’t have to come from wages. Work with an experienced attorney to show the Arizona bankruptcy court that you have a stable monthly income, enabling you to complete the mandated payments.

Filing Bankruptcy When Unemployed in Arizona

The first thing you may want to do is decide which chapter you’re going to pursue. If you do not understand the difference between the two options, see an Arizona bankruptcy attorney. Based on your circumstances and the debt you’re dealing with; a lawyer will give you a suggestion about the option that makes the most sense.

You may also want to do the Arizona means test. There are online calculators you can use for the purpose of determining whether you qualify for Chapter 7 bankruptcy. To get an estimate, you’ll have to input information about your currently monthly income, household expenses, the number of people depending on the household income, taxes, insurance, etc.

Remember that unemployment benefits are considered a source of income for the purpose of doing the means test.

filing bankruptcy when unemployedIf you’re thinking that other options could help you handle debt, think again. Some people consider using their 401(k) money or IRA for the purpose of paying off debt. Keep in mind that retirement accounts are exempt under Arizona bankruptcy regulations. This means you will get to keep the funds for your future and the contact attempts on behalf of creditors will be discontinued as soon as the bankruptcy filing is a fact. Attempting to address debt in an alternative way could potentially get you in even more serious financial trouble.

While unemployment does make Chapter 7 filing easier, there is no need to go through the process because you have lost your job. Many people manage to get back on their feet and handle debt, even after going through employment hardships. If you have accumulated a serious amount of debt and you feel like you’re drowning under it, however, a Chapter 7 bankruptcy will give you a clean slate and a fresh start.