Unemployment income and Chapter 13 bankruptcy

By Marrero, Chamizo, Marcer Law, LP,

When individuals or married couples in Florida face financial challenges, they may decide to look into bankruptcy as one among many options for debt relief. Depending on their circumstances, they may opt to file for Chapter 13 bankruptcy which permits them to keep their property as long as they continue to make payments on their obligations for the next three to five years.

Unlike a Chapter 7, Chapter 13 is for people who have a reliable source of income. In a case in New Mexico that was decided in March, a couple believed that the wife’s unemployment compensation should not be considered as income for the purpose of determining plan payments.

However, the bankruptcy court disagreed with the couple and sided with the bankruptcy trustee who wanted to include the payments. The couple argued that unemployment income is actually a benefit issued under the Social Security Act. Some courts have held that unemployment benefits aren’t “income” that should be entered into bankruptcy calculations. However, this bankruptcy court decided otherwise.

This case illustrates the importance of fully understanding one’s obligations during a bankruptcy proceeding. Because a Chapter 13 bankruptcy can take several years to complete, it is not unusual for someone who has filed for bankruptcy to experience life changes during this time. In some cases, these changes can affect the ability to keep current with the repayment plan and could force the debtor into a Chapter 7 proceeding. As a result, debtors who are considering filing under this chapter may want to meet with an attorney in order to come up with a repayment plan that is realistic.