The Short Answer
Yes, you can absolutely file bankruptcy while employed — having a job doesn't disqualify you. In fact, most of our clients are working people who've hit a rough patch with medical bills, divorce, or unexpected expenses. Your income does matter, though: it determines whether you qualify for Chapter 7 or need to file Chapter 13, and it shapes what your Chapter 13 plan payment will look like. The key is that the court wants to see you can sustain whatever repayment arrangement makes sense for your situation.
Of course! The court does not expect everyone who files bankruptcy to be down, out, and unemployed. That’s just not how life works; our clients are good hard working people who have simply fallen on hard times. You may have a job and file a bankruptcy and in most cases unless you have signed something stating that the employer must be notified if you file a bankruptcy, your employer wouldn’t have a clue you even filed.
In your petition you are required to report your income in several different areas. You will have to show your earnings for the past two years, where you work now and what your expected income going forward as well as what you have earned in the past 6 months prior to filing the bankruptcy. In bankruptcy, your income is calculated based upon a “Means Test”; although there are many other types of income besides employment that are also a factor in the means test. This tells the court whether or not you qualify for a Chapter 7 bankruptcy or if you will need to file a Chapter 13 bankruptcy based upon your income.
In the event that you file a Chapter 13 bankruptcy your debts are a factor, but your plan payments will be based also largely upon your past 6 months of income. For example, let’s say that based upon your arrears and debt in the plan, you’re looking at plan payments of $500 per month, BUT based upon your prior 6 months, your income shows that you have an extra $1,000 left over each month. You would make a payment closer to the $1,000 mark because your prior income states that you can afford it.
Also, in the occurrence that you file a bankruptcy and you have any secured items in which you may wish to keep (such as a house, car, jewelry, furniture, or electronics) you must be able to show that you can afford to make the contractual monthly payments. The court will not allow you to file a Chapter 7 bankruptcy unemployed and still keep your home unless you can show you are getting income from another source (like family support) to show you can afford the monthly payment. Bankruptcy court has been enacted to help consumers. Whether you have a job or not does have an impact on your bankruptcy options but you can certainly still file a bankruptcy even if you do not have a job.
Key Takeaways
- Having a job does not disqualify you from filing bankruptcy — the court expects many filers to be employed.
- Your income for the past 6 months is used in the means test to determine whether you qualify for Chapter 7 or must file Chapter 13.
- In a Chapter 13 case, your plan payment is based largely on your disposable income from the prior 6 months, not just the minimum needed to cover your debts.
- If you want to keep secured property like a house or car, you must demonstrate you can afford the ongoing monthly payments regardless of which chapter you file.
- In most cases your employer will never know you filed — unless you've signed a contract specifically requiring you to notify them.
Attorney Insight
The assumption I push back on constantly is that bankruptcy is only for people who are broke and out of work — some of our busiest Chapter 13 filers are dual-income households. What catches employed filers off guard is the 6-month lookback on the means test: if you recently got a raise or picked up overtime, that income is counted even if it won't continue, and it can push you out of Chapter 7 eligibility unexpectedly. Timing your filing carefully around income fluctuations is one of the most practical — and most overlooked — ways we help clients get into the right chapter from the start.
