Bankruptcy Protection for the Unemployed

If you are filing for bankruptcy while unemployed, you generally have one option available, which is to file a Chapter 7 bankruptcy.  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. This is different from a Chapter 13 proceeding, which occurs where a debtor agrees to pay off some portion of his or her debts pursuant to a payment plan.

Generally, 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. Consequently, a Chapter 7 bankruptcy proceeding is generally the most appropriate option for filing bankruptcy while unemployed.

State Laws on Exempt Property

You will want to check the bankruptcy exemption laws in your state to determine which of your assets and how much of your equity will be protected from liquidation.

While the bankruptcy trustee assigned to your case has the power to liquidate non-exempt assets, in reality, most people who file for chapter 7 will keep all of their property, simply because most people in financial distress don't have any significant non-exempt equity for the trustee to pull out.

Secured Debt in a Chapter 7

While most of your debts will be discharged (canceled) in a chapter 7 bankruptcy, the lien on collateral on secured debt will not. This means if you have a car loan or a mortgage, you can get the debt discharged, but you will lose the property when the creditor exercises the lien.

You do have the option to reaffirm secured debt if you want to keep the property. By reaffirming the debt, such as your car loan, you promise to keep up with the payments as if the bankruptcy hadn't happened. This may not be possible if you are unemployed and don't have sufficient income to make your car payments.

If you find yourself contemplating filing for bankruptcy, you should consult with an experienced bankruptcy attorney.  An experienced bankruptcy attorney will not only be able to help you identify your particular state’s requirements, but also, the attorney will be able to assist you in determining the best bankruptcy option, based upon your unique facts and circumstances.  Moreover, an experienced bankruptcy attorney will have an innate understanding of the complexities of the bankruptcy law and be able to present your case in the most advantageous way.