How Being Unemployed May Affect Your Bankruptcy
Updated: Mar 29
The COVID-19 pandemic has profoundly affected people’s lives beyond contending with the risk of being infected. A record number of people have lost their jobs as businesses adjust to government efforts to stem the spread of the virus. More than 2.9 million claims for unemployment benefits have been processed in Georgia since the pandemic began. That represents a 4,000% increase over the number of claims processed during the same period one year before. As people struggle with lost or reduced incomes, many of them may be forced to seek protection from creditors through bankruptcy. The following information about unemployment and bankruptcy should be helpful.
Unemployment benefits and Chapter 7 bankruptcy
As a general rule, individuals look to Chapter 7 or Chapter 13 when seeking relief from financial challenges. Chapter 7 offers someone overwhelmed by debts to discharge them to achieve a fresh start. Nonexempt assets owned by the debtor, which are those assets not protected under state or federal laws, may be taken by the trustee assigned to oversee the bankruptcy and sold to repay all or some of the debts. With the exception of certain types of debts, such as taxes, child support and alimony, the remaindered of the debts owed may be discharged.
Unemployment benefits you receive from Georgia count as income in the event you choose a Chapter 7 bankruptcy and could affect your eligibility to file. Chapter 7 has a means test to determine whether you are eligible for it.
The means test compares your monthly income at the time the bankruptcy petition is filed against the median income in Georgia. The fact that your income exceeds the state median income does not automatically make you ineligible to file a Chapter 7. You may be ineligible if the means test shows that you have sufficient disposable income, which is the money you have left after paying housing expenses, utilities, food and other normal living expenses, to pay your creditors.
State unemployment benefits traditionally would not be enough to make you ineligible under the means test to file a Chapter 7 bankruptcy petition. Fortunately, the additional $600 a week you may be receiving under the federal Coronavirus Aid, Relief, and Economic Security Act will not affect your eligibility.
The CARES Act, which was passed by Congress to provide financial relief to individuals and businesses affected by the coronavirus, excludes virus-related payments from your disposable income for purposes of determining eligibility for filing under Chapter 7. A consultation with an Atlanta bankruptcy attorney can help you to understand how the CARES Act may apply to your particular circumstances. If your income makes you ineligible for a Chapter 7 bankruptcy, you may be eligible to obtain debt relief and retain assets through a Chapter 13.
Chapter 13 plans and unemployment
Chapter 13 bankruptcy differs from a Chapter 7 by allowing debtors to repay all or part of what they owe over time while retaining the assets they own. A debtor is protected from collection action by creditors as long as payments are made according to the court-approved plan. At the end of the repayment period, the remaining balances on any debts owed are discharged.
You may qualify for Chapter 13 bankruptcy even though you are unemployed provided your total monthly income demonstrates an ability to fulfill your obligations under a repayment plan. A consultation with an Atlanta bankruptcy attorney to review your income may and employment status can help determine if you can file under Chapter 13.
If unemployment makes it impossible for you to continue making payments under a Chapter 13 repayment plan, the CARES Act may offer some help. The CARES Act provides that Chapter 13 plans approved before the effective date of the law may be modified to assist debtors experiencing a financial hardship related to COVID-19.
The loss of a job or diminished income caused by a reduction the available hours at your place of employment may allow you to request a modification of your repayment plan. The bankruptcy court has the authority under the CARES ACT to extend the time to repay. The extension may be for up to seven years from the date the first payment was due under the plan.
Get advice and guidance from an Atlanta bankruptcy attorney
The benefits related to Chapter 7 and Chapter 13 bankruptcy that are available to you under the CARES Act must be acted upon before they expire one year after the statute was signed by the president. If you are experiencing financial hardship related to COVID-19, a consultation with a bankruptcy attorney may offer options for debt relief through bankruptcy.