Does unemployment income count towards income in Chapter 7?
Unemployment benefits among those not considered as income in bankruptcy cases.
Government benefits, whether for unemployment or public assistance, usually take care of only basic expenses and are often desperately needed to meet family and household needs by the individuals receiving them.
Given the financial straits that usually accompany these benefits, individuals receiving such assistance may have to file bankruptcy to relieve severe debts that pile up during difficult financial circumstances.
But those facing bankruptcy don't have to worry about whether the U.S. Bankruptcy Court will seize their benefit checks along with other assets that are liquidated if they file Chapter 7, the most common form of personal bankruptcy. Unemployment benefits are allowed to be exempt for an unlimited amount, as are social security payments, veterans benefits and public assistance - all fully exempt for as much as the person receives.
As a result, they are not included in the tally of income and expenses in a "means test" that measures the debtor's income against the average income for the state in which they live. Legal experts point out that Chapter 7 filers usually don't earn above the median levels anyway, and higher earners who do are more likely to file a Chapter 13 bankruptcy.
In addition, unemployed individuals are limited to Chapter 7 actions, because a Chapter 13 bankruptcy requires the debtor to make court-ordered payments through a repayment plan that lasts three to five years.
According to the BankruptcyLawNetwork.com, the practice of exempting certain government benefits was bolstered by a Massachusetts court decision in 2007 that determined that unemployment benefits are derived from social security benefits, which aren't considered as countable income in a bankruptcy case.
"This decision has widespread implications, since foster care, day care, and adoption subsidies as well as most forms of welfare [but not Food Stamps] are similar benefits under the Social Security Act," stated Massachusetts attorney L. Jed Berliner on the website.
While homes and cars often can be saved through state and federal exemptions high enough to cover their full value, the point of selling off non-exempt property is to pay creditors something before the debts are discharged when a Chapter 7 case concludes.
However, the court also recognizes the need to maintain an average lifestyle and will allow exemptions for alimony, child support and retirement payments up to the amount the individual needs to maintain a middle class standard of living. Other benefits that are allowed in various amounts include payments for crime victims, personal injury or wrongful death.
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