Losing your job can make it harder to keep up with debt payments and may affect your bankruptcy options. Because the means test factors in your income, when you choose to file for Chapter 7 can play a significant role in your eligibility.
Does unemployment income count?
Chapter 7 uses a means test to see whether your income creates a presumption of abuse. The test looks at your current monthly income, which is generally based on the average income received during the six months before filing.
Depending on the circumstances, unemployment benefits may be included in that calculation. If you worked earlier in the six-month period and later began receiving unemployment, the average may still reflect both types of income.
When should you file?
Timing can affect the result. If you file soon after losing your job, the six-month average may still include several months of wages. Waiting longer may allow lower income months to replace those higher earnings.
If your income falls below the applicable median for your household size, you may avoid the presumption of abuse under the means test. Still, other factors can matter, so below-median income does not guarantee Chapter 7 approval.
Delaying a filing can also have tradeoffs. Debt, collection activity and other financial problems may continue while you wait.
Can a future job affect your case?
A possible future job does not automatically control Chapter 7 eligibility. The means test mainly looks at the income you received during the lookback period.
You also need to provide complete and accurate financial information. A job offer, severance payment or other change in income may affect your case depending on when it happens.
What should you consider before filing?
After a job loss, the timing of your filing can change how your income is evaluated. Reviewing your recent income, unemployment benefits and household size before you file can help you make a better-informed decision.