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    • Ronson J. Shamoun, ESQ., LL.M.
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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
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          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
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          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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        • EDD California Payroll Tax Lawyer
          • EDD Investigations
          • EDD Collections – Liens, Levies, and Garnishments
        • CDTFA – California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
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    • Trust, Estate & Probate Litigation
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      • Landlord Tenant Law
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  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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    • RJS Law Donates Billboard to the Girl Scouts
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Filing Bankruptcy While Unemployed

Filing Bankruptcy While Unemployed

Filing Bankruptcy While Unemployed

The last few years have been economically challenging to say the least.  Jobs were lost, stimulus payments have stopped, and savings have dwindled leaving many individuals to rely on credit cards to make ends meet.  After a period of unemployment, many come to realize that a bankruptcy may be needed to help deal with mounting debt.  Is it better filing bankruptcy while unemployed?

The short answer is yes, especially if the debtor desires to wipe out their debt without repayment as is the case in chapter 7 bankruptcy.  To qualify for a chapter 7 bankruptcy, a debtor’s income and expenses need to reflect an inability to substantially fund creditors in a chapter 13 repayment plan.  Otherwise, under the Bankruptcy Code, it would be an abuse of the process to file a chapter 7 due to an ability of the debtor to substantially pay creditors in a chapter 13.

To be clear about chapter 7 bankruptcy, the lower the income the better, and the higher the allowable living expenses the better, too.

The Difference Between Chapter 7 and Chapter 13 Bankruptcy

The two most common forms of bankruptcy filings are chapter 7 and chapter 13.  As mentioned above, in a chapter 7 a debtor gets most types of debts wiped out without a repayment plan and the entire process is completed in about three months.  Although chapter 7 bankruptcy could require the liquidation of assets to eliminate debt, with proper exemption planning performed by an experienced bankruptcy attorney, in only a small percentage of chapter 7 cases will a debtor have an asset liquidated.

Chapter 13 bankruptcy, however, involves the reorganization of debts through a re-payment plan where the debtor makes a single monthly payment to the chapter 13 trustee who then distributes those funds to the creditors per the terms of the plan.  While a chapter 13 is a wonderful tool to stop a foreclosure by providing a debtor up to five years to repay past due mortgage arrears, unless that is the case, usually a debtor would be far better off filing a chapter 7.

Since both bankruptcy filings are different, both have different qualifications.  Eligibility will depend on:

  • How long a person has been unemployed
  • The amount of money earned in previous jobs
  • Whether the debtor will start a new job soon
  • Whether there are other sources of income (including income of non-separated spouse)

Unemployment Calculations in Bankruptcy

The Bankruptcy Code considers unemployment benefits as income in both the forward-looking and backwards-looking income tests.   The analysis of the backwards-looking income test only includes income received within the 6 calendar months preceding the month the bankruptcy is filed.

If a debtor is above median income based on the debtor’s household size, the Bankruptcy Code then requires that the debtor pass the Means Test to determine whether and to what extent the debtor’s income enables the debtor to substantially repay creditors in a chapter 13.  In some cases, unemployment income may disqualify the debtor for a chapter 7, but usually the opposite is true.

Some sources of income are not counted towards the backward-looking income test, including Social Security and V.A. disability payments.  It is highly recommended to consult an experienced bankruptcy attorney to determine the best path forward when filing for bankruptcy.

Chapter 13 Bankruptcy Considerations

While a person does not need to have a job to file a Chapter 13 bankruptcy, unemployment compensation may affect the outcome as to whether a proposed plan is confirmable by the Bankruptcy Court.  Under Chapter 13, the debtor will typically have a three-to-five-year repayment plan proposed to repay creditors.

In some cases, Chapter 13 filings may be challenging for the unemployed because regular income is needed to show that the debtor’s plan is feasible.  In other words, the debtor’s projected future income, less expected reasonable and necessary living expenses, mathematically must show enough income would remain each month to fund the amount of the proposed Chapter 13 plan payment.  As unemployment benefits are of a limited duration, the Chapter 13 reorganization plan may be denied.

Consulting an Experienced Bankruptcy Attorney

There are many different options to consider when filing for bankruptcy.  The experienced bankruptcy team at RJS LAW will help you navigate the intricacies of the bankruptcy process and help you obtain a fresh start unburdened by most types of debt.  To schedule a free confidential, no-obligation consultation with the bankruptcy team at RJS LAW call us today at (619)-595-1655 to discuss your options filing bankruptcy while unemployed.


Filed Under: Bankruptcy, Unemployment Tagged With: Filing Bankruptcy, Filing Bankruptcy While Unemployed

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