Can I file bankruptcy if I'm unemployed?
Unemployment benefits are fully exempt for individuals who file bankruptcy.
When people are unemployed, they are facing a myriad of financial concerns - how long their unemployment will last and whether they will have enough money to make crucial payments on their mortgage and car loans.
Under these circumstances, some individuals may consider filing bankruptcy, but are worried that the limited income they have with unemployment benefits may be at risk of being lost as well.
"The short answer about unemployment benefits and bankruptcy is that, if you file for personal bankruptcy while receiving unemployment, your benefits should be protected, and you can typically continue to receive them after bankruptcy, if necessary," according to Clear Bankruptcy.com.
The website points out that among the exemptions allowed by the U.S. Bankruptcy Court, unemployment benefits are allowed to be exempt for an unlimited amount.
In this respect, unemployment payments are not alone. Also included as exemptions by the bankruptcy code are social security, veterans benefits and public assistance - all fully exempt for as much as the person receives.
In addition, there are exemptions for alimony, child support and retirement payments up to the amount the individual needs to maintain an average lifestyle. Other benefits that are allowed in various amounts include payments for crime victims, personal injury or wrongful death.
An unemployed individual usually must file Chapter 7 bankruptcy, the most common form of personal bankruptcy.
"If you are filing for bankruptcy while unemployed, you generally have one option available, which is to file a Chapter 7 bankruptcy," states BankruptcyLawFirms.com. "In a Chapter 7 bankruptcy proceeding, you are agreeing to liquidate any non-exempt assets to pay off some of your debt. In return, you get to discharge most if not all of your debt."
That doesn't mean the debtor will automatically lose a home or car. There are many exemptions allowed under state and federal law that are usually large enough to cover the value of major possessions such as a house, car or furniture.
While an unemployed individual who is filing bankruptcy isn't eligible for Chapter 13 bankruptcy, which requires that they make court-ordered payments into a repayment plan that lasts several years.
"A Chapter 13 bankruptcy proceeding is not available when unemployed, since you are is not making any regular income with which to pay into the Chapter 13 repayment plan," the website states. "Consequently, a Chapter 7 bankruptcy proceeding is generally the most appropriate option for filing bankruptcy while unemployed."
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