Oftentimes, the reason for seeking debt relief through a bankruptcy case is the loss of a job. Speaking with dozens of new clients a week, I have found that a large percentage, are currently unemployed, expect to become unemployed in the near future, or have been unemployed in the previous year. The following are a few of the recurring questions I hear from clients who are in this situation.
Q: Can I file bankruptcy if I am unemployed?
A: Yes. There is nothing in bankruptcy law that would prevent an unemployed person from filing bankruptcy. As a matter of fact, a significant number of the clients I represent are unemployed at the time of filing.
Q: Can I file for unemployment benefits and file for bankruptcy at the same time?
A: Yes. One has nothing to do with the other, and we actually encourage clients who would potentially qualify for state unemployment benefits to apply for them.
Q: Will filing bankruptcy make it more difficult for me to apply for unemployment benefits in the future?
A: No. Even if you are working now and expecting to lose that job before or after you file for bankruptcy, the fact that there is a bankruptcy on your credit report will not impact your ability to apply for and receive unemployment benefits.
Q: Will filing for bankruptcy make finding a job more difficult?
A: That depends. If you are applying for government or public sector jobs, § 525(a) of the Bankruptcy Code prevents such employers from denying employment solely on the basis of a prior bankruptcy. Private sector jobs, on the other hand, do not have the same protections. Many employers today perform background checks on potential employees, which will reveal the record of any bankruptcies. It is usually up to the employer whether or not he or she wants to employ someone with a prior bankruptcy. Some employers may not care at all, while others may consider the bankruptcy a bar to employment. A prior bankruptcy could impact the prospects of being hired for any job that involves the handling of money or finances, especially those with certain license requirements. However, most employers do not discriminate against someone who has filed a bankruptcy.
Q: If I am unemployed, how can I afford to file bankruptcy?
A: We understand that individuals filing for bankruptcy typically do not have much money just sitting around. However, you may want to think in terms of “how can I afford not to file?” For a relatively small amount of money, you will be clearing out tens if not hundreds of thousands of dollars in credit cards, unsecured loans and line of credit, mortgage deficiencies, car repossessions, medical bills, and even some taxes, among other types of debts. You also will be ending the harassing phone calls, letters, lawsuits, garnishments, bank levies, and other collection efforts that are common with higher debt. Eliminating all this will reduce stress and prevent your credit from getting any worse, allowing you to focus on your job search and your fresh start.
Q: If I need to file bankruptcy and am unemployed, what options do I have to come up with the fees?
A: There are several options if you do not have all of the money right away. It would be perfectly fine for you to borrow the funds from a friend or relative, as long as you do not pay that person back until after you have filed the bankruptcy. Additionally, if you know someone who would be willing to help you, but who cannot come up with all the money at once, you may be able to utilize our third party payment plan. This is where a third party agrees to pay your fees in the form of monthly payments typically over the course of 18 months. We do not charge interest or late fees, and we do not report to credit bureaus. Finally, you could make payments to the firm over the course of a few months, and once all of the fees are paid, we can begin work on filing your case.
Q: What if I lose my job after filing for a Chapter 13 bankruptcy and can no longer afford my monthly payments?
A: If this happens, and you still have some monthly income (from a spouse or unemployment benefits), you may be able to continue making your payments, or even reduce them to an amount that is manageable payments by modifying your Chapter 13 plan. If you have no income at all, or so little that you cannot afford reduced payments, it may be possible to convert the Chapter 13 into a Chapter 7 bankruptcy.
Q: Is it possible for me to file a Chapter 13 bankruptcy if my only income is unemployment benefits?
A: It depends. The key factor in determining this would be when you began to receive your benefits and how much longer you expect to receive them. If you just started receiving your benefits, and you expect to have several extensions, then filing a Chapter 13 may make sense. However, if you have exhausted all your extensions and only have a month or two left of benefits, then filing a Chapter 13 would not be a viable option for you.
Q: The state says I was overpaid unemployment benefits. Is this dischargeable in bankruptcy?
A: Generally no. There is nothing in the bankruptcy code preventing a debt owed to the government in the form of an administrative error from being discharged in bankruptcy. If you are doing what you are supposed to be doing in regards to continuing to receive unemployment benefits, any resulting overpayments may be discharged. However, if the overpayments were acquired by fraud (debtors intentionally and falsely representing that they are employed) or a mistake on the part of the debtor, then unemployment overpayments will not be discharged. Even if you were not intending to defraud the state, if you knowingly accepted payments that were greater than you were entitled, or if you knowingly accepted payments when you were no longer entitled to benefits, or if you lost at an unemployment appeal hearing after receiving the benefits, or if you failed to tell the state that you became employed, then the overpayment is not dischargeable. The amount you overpaid could be deducted from any future benefits as well.