Can You File Bankruptcy in California If You Receive Unemployment Income?

Posted by on Nov 14, 2011 in Chapter 13 Bankruptcy Issues, Chapter 7 Bankruptcy Issues | 159 comments

Oftentimes, clients are unsure whether they can file bankruptcy while receiving unemployment income. The answer depends on whether a client’s current monthly income (as calculated under the bankruptcy code pursuant to 11 USC Section 101(10A)) for the six months prior to the month in which the case is filed causes the client’s household income to be above or below the median household income per that client’s household size.  See this article for further explanation of the means test.

Potential bankruptcy debtors who want to file bankruptcy in California should understand that some courts will find that state unemployment compensation is treated as income and is not a social security income exclusion for the purposes of the means tests.   See In re Ormonde, Case No. 10-10767-B-13 (2010) Not For Publication and Only Persuasive under Fed.R.App. 32.1.  Bankruptcy courts are actually divided on the issue.  Some courts look at legislative intent while other courts believe that is overstepping their authority to provide for what Congress may or may not have intended.

In a chapter 7 bankruptcy context, where the unemployment income will count as part of a debtor’s income for purposes of the means test, debtors must include that income and must also beware that prior employment income during the last six months pursuant to calcualtions of income under 101(10A) may leave the debtor above the income limits to qualify for a chapter 7 case.  That is just one reason why an experienced bankruptcy attorney must be retained to properly advise the debtor of his/her best options in and out of bankruptcy.

In a chapter 13 context, debtors must realize that the unemployment income will count as income for calcualtions of disposable income.   This will, in most cases, increase a debtor’s chapter 13 plan payment. However, all cases are fact specific, and therefore this may not be true in all cases.   Furthermore, clients must recognize if unemployment is the sole source of income in a chapter 13 plan, the plan may be unfeasible where the unemployement income will cease before the plan is completed.  In that event, the chapter 13 bankruptcy debtor must find another source of income to replace the unemployment income.   This can have multiple effects on a debtor’s chapter 13 bankruptcy case.

As someone considering bankruptcy, if you are currently receiving unemployment income, chances are you will need to speak with an attorney who can assist you in filing a personal bankruptcy case.   While it is probable that an individual receiving unemployment will qualify to file bankruptcy in California, it is important that anyone considering bankruptcy speak to an experienced and capable bankruptcy attorney.  At JCH Law Firm, we help individuals, families, and businesses file bankruptcy.  We are honest, experienced, and affordable.  That is why clients retain our firm and attorney Jeffrey Hsu to represent them in bankruptcy matters.  Call us today toll free at 800-371-5523.   We look forward to hearing from you.

159 Responses to “Can You File Bankruptcy in California If You Receive Unemployment Income?”

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