Going bankrupt is not the end of your financial viability. Declaring bankruptcy provides you with legal protections from the debt collection practices of your creditors and allows you the breathing room to reorganise your finances even if you're unemployed or experiencing a cash flow problem. With a proactive strategy, you may emerge from your bankrupt status relatively debt-free.
Declared Financially Insolvent
The court may declare you financially insolvent if your total assets are insufficient to pay off your debts even if current mortgaged property is sold along with assets you completely own. Your unemployment status may not affect the court's decision to declare you insolvent if the court believes you're likely to find employment in the future. If the court believes your employment status or financial situation is not likely to improve you may be found judgment-proof. This is a legal status by which your creditors are unable to force you to pay back your debts because you simply don't have the money and are not likely to ever accumulate enough money to make significant payments.
Defense in Court
Being judgment-proof is not a legal defence if you are sued by a creditor in civil court. A judge must determine your financial status over the course of the lawsuit and declare you judgment-proof. Your judgment-proof status does not prevent a creditor from obtaining a judgment against you or continuing collection practices; your status prevents your creditor from actually collecting on the debt. The judgment and all account delinquencies may continue to appear on your credit report for between seven to 10 years.
Declaring Bankruptcy While Unemployed
You can still declare bankruptcy while unemployed though you are restricted in the particular chapter of bankruptcy you may file under. Chapter 13 bankruptcy requires a repayment plan as part of its consumer debt adjustment. Your lack of steady income makes Chapter 13 an unlikely bankruptcy route. Your lack of income may actually help you win approval in a Chapter 7 bankruptcy case. This form of bankruptcy completely expunges your unsecured debts, including credit cards and medical bills, while liquidating your nonexempt assets to make a final payment to your creditors.
Paying Bankruptcy Fees
Filing bankruptcy requires the payment of filing fees, which vary in amount by state. Coming up with the money to pay for your filing fees may be difficult because of your unemployment. When you submit your bankruptcy paperwork to the court, you may also submit an application to wave the bankruptcy filing fees because of financial hardship. This application is usually obtained from the clerk of courts office where you picked up your bankruptcy paperwork.