Can You File for Bankruptcy If You Have a Job? A Comprehensive Guide

 

Can You File for Bankruptcy If You Have a Job? A Comprehensive Guide

Introduction: The Financial Tightrope

The notion of filing for bankruptcy often conjures images of utter financial ruin. But what if you’re gainfully employed? Can you still file for bankruptcy? The short answer is yes, but the process and implications differ. Let’s dive in.

The Types of Bankruptcy: Chapter 7 vs. Chapter 13

Chapter 7

Often referred to as “liquidation bankruptcy,” Chapter 7 is generally for those with limited income. However, if you have a job, you may still qualify, depending on your expenses and the “means test.”

Chapter 13

Known as “reorganization bankruptcy,” Chapter 13 allows you to keep your assets and restructure your debts. This option is more common among those with a steady income.

The Means Test: The Financial Litmus

For Chapter 7

The means test calculates your disposable income by subtracting certain allowed expenses from your current monthly income. If you’re above the median income for your state, you may not qualify for Chapter 7.

For Chapter 13

There’s no means test for Chapter 13, but you do need a regular income to demonstrate that you can meet the repayment obligations.

The Employment Factor: Job Stability and Income

Job Stability

Your employment status can impact the bankruptcy trustee’s assessment of your ability to repay debts.

Income Level

A higher income may push you toward Chapter 13, where you’ll repay some or all of your debts over time.

Employer Notifications

In most cases, your employer will not be notified unless wage garnishment is part of your repayment plan.

Job Security

Federal law prohibits employers from discriminating against employees who have filed for bankruptcy. However, it could potentially affect future job prospects in the financial sector.

Conclusion: A Nuanced Decision

Filing for bankruptcy while employed is possible, but it requires careful consideration of your income, expenses, and the type of bankruptcy that best suits your situation.