Unemployed Debtors And Chapter 7 Means Test

People who become recently unemployed can usually file Chapter 7 bankruptcy. I have written previously that people who technically fail the bankruptcy means test may still be permitted to file bankruptcy if unemployed under “special circumstances” provision of the means test law. The length of the debtor’s unemployment prior to filing can make a big difference.I spoke to a prospective bankruptcy debtor who had been making $8,000 per month in a two-person household. She could not pass the means test at that salary level. Assume the debtor lost his job six months ago. In that case the debtor could file bankruptcy whatever his prior salary because the means test only looks back six months. If that debtor found a new job prior to filing where the debtor made $8,000 or even more money the debtor could still file Chapter 7 because he likely would not have made enough money from the new job, whatever the salary, to raise his six month’s income above median income.

Suppose, on the other hand, the debtor became unemployed just one or two months ago. At $8,000 per month his salary during just four of the six months prior to bankruptcy would still be too much to pass the means test. However, his current unemployment may constitute a special circumstance to permit filing because he would be without prospective income. In this situation, a new job prior to filing bankruptcy would probably prevent a chapter 7 bankruptcy because he would not have unemployment as a special circumstance.

The high income debtor with six months unemployment can search for a new job immediately without jeopardizing chapter 7 eligibility, whereas the more recently unemployed high income debtor cannot accept employment at least  until after he has filed his petition. I would advise the recently unemployed debtor to wait until after his trustee meeting for new employment. Even though a new started after the filing a trustee could seek to challenge the bankruptcy as abusive if the trustee hears that the debtor is again making a relatively high income.