In order to be eligible for a Chapter 13 bankruptcy, you must have enough income to pay down your debt, plus meet your regular expenses, for the next three to five years. If you are unemployed but still have some regular income, you may still qualify for a Chapter 13 bankruptcy if you show that you have the ability to meet your obligations.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is sometimes known as a "wage earner's plan" because you must have a verifiable source, or sources, of income to qualify. During the plan, you'll live on a court-approved budget and use all of your disposable income to pay down your debt. The time limit on your Chapter 13 plan is three to five years, depending on your resources, and the court can discharge any unsecured debt balance at its conclusion.
When you file for Chapter 13, you'll have to submit a budget to your bankruptcy trustee demonstrating that you have the income to fulfill the terms of your repayment plan. If you are unemployed, you can design your budget using income from other sources, such as unemployment insurance, royalties, rental income, Social Security, welfare, or pension funds, to qualify for Chapter 13 bankruptcy.
Losing Your Job in Chapter 13
If you are in Chapter 13 bankruptcy and lose your job, inform both your lawyer and your bankruptcy trustee right away. If you miss a Chapter 13 payment, you risk having your case dismissed. Be proactive so you can learn about your alternatives, such as converting your bankruptcy to a Chapter 7 discharge, a modification to your current plan, or a hardship discharge.
If you can't make your Chapter 13 payments because of unemployment, you still have options. You may be able to modify your plan and lower your monthly payments. You may also be able to request a hardship discharge. A hardship discharge stops your Chapter 13 repayment plan and immediately eliminates your debt. Hardship discharges can be hard to get, however. If you haven't paid your creditors very much, you may have no choice but to convert your plan to a Chapter 7 liquidation bankruptcy. In a Chapter 7 bankruptcy, your debts are discharged, but you'll lose your assets (such as your home) after your bankruptcy trustee sells them off and uses the proceeds to pay your creditors.