In light of the coronavirus pandemic (COVID-19) of 2020, millions of Americans have found themselves out of work. Not only that, but many small businesses have had to shut down permanently, and even large retailers, household names, have either filed Chapter 11 bankruptcy or they’ve closed stores for good.
Needless to say, the American economy took a hard hit when COVID-19 made its way to the United States and now millions are unemployed and considering their options, with one of them being Chapter 7 bankruptcy relief. But the question is if you are recently unemployed, can that hinder you from qualifying for Chapter 7 bankruptcy?
How Unemployment Affects Chapter 7
Chapter 7 bankruptcy is reserved for low-income filers – people who really need Chapter 7 bankruptcy relief. In many ways, unemployment is actually to a debtor’s advantage because it can help them qualify for Chapter 7, but there’s a catch.
In order for someone to qualify for Chapter 7, they have to pass the “bankruptcy means test,” which looks at the debtor’s income in the six months prior to the bankruptcy filing and the debtor’s household size, then that data is compared to the median income for the same-size household in California.
If you’ve recently lost your job due to COVID-19 or for another reason, you may not pass the means test if you’re newly unemployed. Even if you lost your job for good and there’s no hope of getting it back, you’ll still have to report what you were earning in the past six months on the means test. If you earned too much, you could fail the test.
What’s the solution? Wait it out. If you continue to be unemployed, your average income for the six-month period is going to drop quickly. If you do receive any unemployment, keep in mind that you’ll have to report those when you take the means test. To learn more about timing your bankruptcy filing, contact Nguyen Law Group so you don’t end up waiting too long or too short of a time to get your bankruptcy case rolling.