Due to COVID-19, we will be adjusting our normal protocol to abide by public health and safety guidelines. We ARE STILL OPEN and are here to help families through these difficult times. We can conduct consultations and meetings via phone, email, and text, so please do not hesitate to contact us for assistance.

Can I File for Chapter 7 Bankruptcy If I Receive Unemployment Benefits?

If you're receiving unemployment benefits and struggling to pay off your debts, you may be wondering if you're eligible to file for Chapter 7 bankruptcy. The answer is yes, you can still file for bankruptcy even if you're receiving unemployment benefits. However, there are some important things to consider before filing.

Unemployment benefits aren’t considered exempt from bankruptcy, but that doesn’t mean you will have to forfeit every cent over to the bankruptcy court. Consult with an attorney first, but this financial resource is typically treated like any other income source – that means you may be able to use it to afford certain necessary expenses without incurring penalties.

The most important role unemployment benefits play in bankruptcy, however, occurs when determining whether or not you qualify for bankruptcy.

What Is the Means Test?

If you are filing for Chapter 7 bankruptcy, the means test determines your eligibility for bankruptcy. This test takes into account your average income within the past six months, and you can qualify for bankruptcy if this average falls below a certain threshold.

In California, the threshold median income for all earners in the state. This number can fluctuate month-to-month – for example, the U.S. Census Bureau reports that between April 2023 and May 2023, a family of four had a median income of $122,707 in California, while a single earner could qualify for bankruptcy if they earned less than $75,710 during that period.

Because this number fluctuates, now may not be the right time to file for bankruptcy. Consult with a bankruptcy attorney for help determining the optimal time to seek debt relief.

How Unemployment Benefits Can Affect the Bankruptcy Means Test

Your unemployment benefits may help or hinder your ability to qualify for bankruptcy. For example, if you previously earned too much money to qualify for bankruptcy, receiving a lesser amount of unemployment income could put you below the threshold necessary to qualify.

By the same token, however, an overpayment of unemployment benefits could push your income level past the median income threshold, thus disqualifying you from bankruptcy.

Both of these situations are fairly uncommon, but they could affect you if your income is within a few hundred dollars of qualifying (or not) for bankruptcy.

Protect Your Unemployment Benefits with Nguyen Law Group

At Nguyen Law Group, we understand how difficult it can be to navigate bankruptcy. That's why we're here to help. Our experienced bankruptcy attorneys can help you protect your unemployment benefits and get the fresh start you need.

Contact us today to schedule a free consultation and learn more about our bankruptcy services.