Can You File for Chapter 13 Bankruptcy When You’re Unemployed?

Written By: Attorney Robert Stiberman | Bankruptcy, Chapter 13 Bankruptcy Updated April 19, 2023

If you’re struggling with debt and are unemployed, you might wonder if you can file for Chapter 13 bankruptcy to get some relief. The answer is more complex than a simple yes or no, as various factors come into play. In this article, we’ll discuss the basics of Chapter 13 bankruptcy, its eligibility requirements, the challenges of filing while unemployed, alternative options, and tips for improving your chances of successfully filing.

Chapter 13 Bankruptcy: An Overview

The Basics

Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to develop a plan to repay all or part of their debts. It typically involves a repayment plan that lasts three to five years, during which the debtor makes monthly payments to a trustee who then distributes the funds to creditors.

Advantages of Chapter 13 Bankruptcy

Some advantages of filing for Chapter 13 bankruptcy include stopping foreclosure on a home, catching up on missed mortgage or car loan payments, and protection from creditors during the repayment period.

Eligibility for Chapter 13 Bankruptcy

Income Requirements

To be eligible for Chapter 13 bankruptcy, you must have a regular income source. Although the bankruptcy code does not define regular income, it can include wages, self-employment income, Social Security benefits, income from a non-filing spouse, and family support. The income should be sufficient to cover your monthly living expenses and the proposed repayment plan.

Debt Limits

There are also debt limits for Chapter 13 bankruptcy. As of 2023, total debts at filing cannot exceed $2,750,000, irrespective of the type of debt. These amounts are subject to change, so verifying the current limits is essential when considering filing.

Prior Bankruptcies

Your eligibility for Chapter 13 bankruptcy might be affected if you have filed for bankruptcy in the past. If you’ve had a prior Chapter 13 discharge, you must wait two years before filing again. For a previous Chapter 7 discharge, the waiting period is four years.

Filing Chapter 13 Bankruptcy While Unemployed

Potential Challenges

If you are filing for Chapter 13 bankruptcy while unemployed, it can be a challenging process. The court requires proof of regular income to approve the repayment plan. Without a steady income, you may not be able to afford the monthly payments, and the court may dismiss your case or convert it to a Chapter 7 bankruptcy.

Alternative Options

If you’re unemployed and unable to meet the income requirements for Chapter 13 bankruptcy, consider exploring other debt-relief options. These could include:

1. Chapter 7 bankruptcy: It involves liquidating non-exempt assets to pay off debts. It can be quicker than Chapter 13, but you may lose some of your property.
2. Debt settlement: You can negotiate with your creditors to reduce the total amount you owe. This option may hurt your credit score but can help you avoid bankruptcy.
3. Debt consolidation: Combining multiple high-interest debts into a single, lower-interest loan can help you manage your payments more effectively.
4. Credit counseling: A credit counselor can help you develop a debt management plan and negotiate with creditors on your behalf.

How to Improve Your Chances of Filing Chapter 13 Bankruptcy if Unemployed

Securing a Steady Income

You can try to secure a steady income to improve your chances of filing for Chapter 13 bankruptcy while unemployed. This might involve finding a new job, working part-time, or starting a side gig. You could also ask for financial help from family or friends. Most bankruptcy trustees will require you to provide an affidavit of support as evidence of financial assistance from friends or family members.

Reducing Expenses

Cutting expenses can help you allocate more funds toward your debt repayment plan. Please look over your budget and make sure there are no unnecessary expenses. This might include eating out less, canceling subscriptions, or downsizing your living space.

Consulting a Bankruptcy Attorney

A bankruptcy attorney can guide you through the process and help you determine if Chapter 13 bankruptcy is the right option. They can also help you develop a feasible repayment plan considering your financial situation.

Conclusion

While it can be challenging to file for Chapter 13 bankruptcy while unemployed, it’s not impossible. By securing a steady income, reducing expenses, and consulting a bankruptcy attorney, you can meet the eligibility requirements and find relief from your debts. Always explore alternative options and seek professional advice before deciding on your financial future.

FAQs

1. Can I file for Chapter 13 bankruptcy without an income?
   You’ll unlikely be able to file for Chapter 13 bankruptcy without income, as the court requires proof of a regular income to approve your repayment plan. Consider alternative debt relief options if you cannot secure a steady income.
2. Can I include my spouse’s income when filing for Chapter 13 bankruptcy if I’m unemployed?
   You must include your non-filing spouse’s income when determining your eligibility for Chapter 13 bankruptcy. This income can help you meet the income requirements even if you’re unemployed.
3. How long does a Chapter 13 bankruptcy repayment plan last?
   A Chapter 13 bankruptcy repayment plan typically lasts three to five years, depending on your income and the debt you owe.
4. What happens if I can’t make the payments on my Chapter 13 bankruptcy repayment plan?
   If you cannot make the required payments, the court may dismiss your case, leaving you responsible for your debts. Alternatively, the court may convert your case to a Chapter 7 bankruptcy, which may result in liquidation of some of your assets.
5. Can I keep my house and car if I file for Chapter 13 bankruptcy?
   In many cases, you can keep your house and car when filing for Chapter 13 bankruptcy as long as you continue paying for these secured debts and include them in your repayment plan.

Robert Stiberman is a bankruptcy attorney with extensive experience in Chapter 13 bankruptcy cases. He has represented numerous clients in bankruptcy cases and is well-versed in the requirements of the Chapter 13 trustees. With his knowledge and experience, Robert Stiberman can provide his clients with the guidance and representation they need to navigate bankruptcy successfully.

Written By:

Attorney Robert Stiberman

Robert is an experienced bankruptcy attorney adept at handling Chapter 7, 13, and 11 filings, with more than 15 years of experience in bankruptcy cases. Robert represents clients in both consumer and business bankruptcy ... Read More