Can You File Bankruptcy With No Income?

It is a common belief that a steady income is a prerequisite for filing for bankruptcy. However, individuals with no or very low income can often still pursue bankruptcy as a path to financial relief. The process involves specific considerations regarding an individual’s financial situation, particularly how income, or the lack thereof, influences eligibility for different types of bankruptcy. This article clarifies these considerations and guides the reader through relevant aspects of filing for bankruptcy without an income.

Eligibility and Income Considerations for Bankruptcy Filing

An individual’s income level significantly influences which type of bankruptcy they may be eligible for: Chapter 7 or Chapter 13. For those with no income, Chapter 7 bankruptcy, often called liquidation bankruptcy, is generally the more accessible option. Chapter 7 is designed to provide a fresh financial start by discharging most unsecured debts, and it does not require a repayment plan funded by ongoing income.

Eligibility for Chapter 7 is primarily determined by the “Means Test,” which evaluates an individual’s income against their state’s median income for a household of their size. If an individual’s current monthly income, calculated over the six months before filing, is below the state’s median, they generally pass the Means Test and qualify for Chapter 7. For someone with no income, this threshold is typically met, as their income naturally falls below the median, avoiding a “presumption of abuse” that might otherwise prevent filing.

Even without current income, the court considers an individual’s overall financial picture, including assets, debts, and expenses. A common scenario for those with no income is a “no-asset” Chapter 7 case, where the individual possesses limited non-exempt property that creditors cannot claim. This often leads to a swift discharge of debts without asset liquidation by the bankruptcy trustee.

In contrast, Chapter 13 bankruptcy, known as reorganization bankruptcy, requires a regular and stable income to fund a repayment plan. This plan spans three to five years, during which a portion of the individual’s disposable income is paid to creditors. Individuals with no income or highly irregular income generally cannot qualify for Chapter 13 because they would be unable to propose or maintain a viable payment plan. The requirement for Chapter 13 is the capacity to make consistent payments, making it unsuitable for those without a reliable income source.

Gathering Necessary Financial Information

Even without income, preparing for a bankruptcy filing requires gathering comprehensive financial information. This documentation forms the basis of the bankruptcy petition and schedules, providing a complete financial snapshot to the court and creditors. All property owned, including real estate, vehicles, bank accounts, investments, and personal belongings, must be documented as assets. This includes detailing their current market value and any liens or encumbrances against them.

Similarly, a detailed list of all debts is required, specifying each creditor, the amount owed, and the type of debt, such as secured loans, unsecured credit card debt, or medical bills. Even if current income is zero, an individual must report any income received in the six months prior to filing, which is used for the Means Test calculation. Additionally, a list of monthly living expenses, even if currently covered by savings or assistance from others, is necessary to demonstrate financial need and justify the lack of disposable income.

Before filing, individuals are required to complete a pre-filing credit counseling course from an approved agency. This course helps assess financial options and provides a certificate of completion that must be submitted with the bankruptcy petition. All gathered information is then used to accurately complete the official bankruptcy forms, which are available from the U.S. Courts website or through the clerk’s office at a bankruptcy court.

Steps in the Bankruptcy Filing Process

Once all necessary financial information has been gathered and the official bankruptcy forms are completed, the next step involves filing the petition with the bankruptcy court. This formally initiates the bankruptcy case. A filing fee is typically required, though individuals with very low income may be eligible to request a waiver of this fee, allowing the case to proceed without upfront payment.

Upon filing the petition, an “automatic stay” immediately goes into effect, which temporarily prohibits most creditors from continuing collection activities, such as lawsuits, wage garnishments, or repossessions. This provides immediate relief from creditor harassment. Following the filing, a mandatory “Meeting of Creditors,” also known as a 341 meeting, is scheduled. During this meeting, the bankruptcy trustee and any creditors who choose to attend can ask questions under oath about the individual’s financial situation and the information provided in the bankruptcy petition.

After the Meeting of Creditors, and before debts can be discharged, individuals are required to complete a post-filing debtor education course from an approved provider. A certificate of completion for this course must be filed with the court to ensure eligibility for discharge. Assuming all requirements are met and no objections are raised, the court will issue an order of discharge, releasing the individual from most eligible debts, usually within 60 to 90 days after the 341 meeting in a Chapter 7 case.