Research suggests that next to high medical bills, job loss is the most common reason why Americans file for bankruptcy. If they are unable to find work before their emergency funds and COBRA insurance coverage runs out, then they face relentless payment demands from their mortgage issuer, auto loan provider, credit card issuer, and other creditors.

When you have been unemployed for months and have no assets, creditors generally can’t collect from you even if they get a judgment because you have nothing they can seize. When you’re “judgment proof” in this manner, is it worth it to file bankruptcy in New York?

Bankruptcy while unemployed

While everyone’s situation is unique, a bankruptcy filing can be worth it even if you have no job prospects and nothing a creditor can take from you. Unless you’re retired, you will likely find another job once the local economic outlook improves. Filing for bankruptcy now and eliminating your unsecured debts can prevent creditors from coming after you once you’re working again. They could garnish your new wages or attach a lien against any assets you acquire, such as a home.

Which bankruptcy chapter should you file?

If you have no income, then filing a Chapter 13 bankruptcy is not realistic because it involves a three-to-five-year repayment plan of some or all of your consumer debts. You would be required to make monthly payments, and if you have no money coming in to fund these installments, the bankruptcy court won’t approve a Chapter 13 filing.

Chapter 7 is an option, even if you’re unemployed. Also known as “liquidation” bankruptcy, it eliminates all of your unsecured debts in exchange for surrendering all property that is not covered by a bankruptcy exemption.

Although the idea of your belongings being seized and sold to satisfy creditor claims is alarming, chances are that you won’t lose anything. Both federal and New York state exemptions are fairly broad, and whichever one you select will likely cover everything you own.

If you would like to file for Chapter 7 bankruptcy, then you need to pass the means test, which is structured to confirm that you don’t have enough disposable income to repay your debts in a Chapter 13 plan.

If your average gross income over the past six months falls below the New York state median income (currently $53,132 for one person, $80,840 for three people), then you pass the means test and will be allowed to file for Chapter 7.

If you’ve been unemployed for a while, then passing the test won’t be a problem, but if you lost your job recently, it’s possible that your past income will put you above the New York state median, making it advisable that you wait before you file.

If you are unemployed and struggling to stay afloat financially, then filing for bankruptcy can provide the relief you need. Contact Jayson Lutzky for the guidance you need to make the right decision. He is a Bronx, New York personal bankruptcy lawyer with over 35 years of legal experience. Mr. Lutzky offers free initial in-office consultations where he can advise you if bankruptcy is the right option for your fresh financial start. Call 718-514-6619 to set up an appointment.