The Curious Case Of The Unemployed Chapter 13 Debtor

The meeting of creditors in his Chapter 13 case looked like it would go off without a hitch. He showed up on time, a quiet gentleman dressed neatly. His lawyer pecked at his iPad nearby, looking competent and busy.

The Chapter 13 trustee called the man’s name, and after being sworn in, he proceeded to answer the questions calmly and without hesitation. He’d not been through Chapter 13 in the past, but his lawyer had clearly prepared him well for what was to come.

Then the trustee asked, “What do you do for a living?”

To which the man replied, “I am unemployed, and haven’t worked in nearly a decade.”

The room went silent. How could an unemployed person file for Chapter 13 bankruptcy – a “wage earner’s” plan?

You Can File For Chapter 13 While Unemployed

Chapter 13 is is limited to those who have regular income, but that’s not limited to employment income. You may have money coming in from a pension, unemployment, Social Security, or even from contributions to your household by friends or family members.

Substantiating Your Income

As with any other Chapter 13 case, you’re going to need to prove the source of your income to the trustee. He or she will need to not only verify the amount and nature of the money coming to you, but also the regularly of that income. Remember that Chapter 13 bankruptcy requires you to have regular and stable income in order to fund your Plan.

Contributions To Your Income From Others

For some people, friends and family members band together to help make the Chapter 13 Plan payments. You’ll want to talk with your bankruptcy lawyer about this before filing your case so that you can line up the proper documents and sworn affidavits from those benefactors. As with any other source of income, it’s going to need to be verifiable by the trustee before you get the green light.

Temporary Income Need Not Apply

If you’re getting only unemployment compensation or some other temporary source of income you probably don’t want to file for Chapter 13 bankruptcy. This income may be regular, but it’s of limited duration. If it ends before you’ve got a backup plan in place then you may find your case dismissed (thrown out of court). Why make an effort to file a doomed case when you can put your energy into stabilizing you financial position before filing for bankruptcy?

It’s Unique, But Not Impossible

In the hands of the right attorney, this scenario won’t pose a problem. It’s all a question of understanding not only the U.S. Bankruptcy Code but also local practice and the attitude of judges and trustees in your area. Spend the time to map out a plan with your lawyer and you stand a better chance of a successful Chapter 13 case.

Jay S. Fleischman is a lawyer who focuses on battling harassing debt collectors in bankruptcy as well as by using consumer protection laws to defend collection lawsuits and sue bill collectors. Find him on Twitter and say hello.

Image credit: anthony ..

Leave a Reply

Your email address will not be published. Required fields are marked *