Can you file for Chapter 7 with no income?

Bankruptcy filings have been climbing as Americans continue to grapple with several looming economic issues, including persistent inflation and high interest rates on borrowing options. When you factor in that household debt is sitting at its latest record high, and that credit card debt, in particular, has now reached a total of over $1.21 trillion, the increase in bankruptcies makes even more sense. After all, Chapter 7 bankruptcy offers the promise of a fresh financial start for those who are facing overwhelming amounts of debt. 

But what happens when you're not just struggling with debt, but also have no income? Whether you've recently lost your job, are unable to work due to disability or are living on unemployment benefits that have run out, facing serious issues with debt but having no paycheck to cover what you owe can leave you with real questions about what your options actually are. After all, Chapter 7 is often described as "income-based," which can lead to the reasonable assumption that if you don't earn anything, you must not qualify.

Is that true, though? Or do you still have the option to pursue a Chapter 7 bankruptcy, even without a steady income and paycheck to help cover your debts? That's what we'll examine below.

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Can you file for Chapter 7 with no income?

The short answer is yes, you can file for Chapter 7 bankruptcy with no income, and in many cases, having little to no income can actually make you more likely to qualify. Here's why: Chapter 7 uses what's called the means test to determine whether you're eligible to discharge your debts through this route. This test compares your income to the median income in your state. If your income is below that median, you automatically pass the means test and can proceed with Chapter 7.

When you have no income or very little income, you're almost certainly going to fall below your state's median income threshold. This means you bypass the more complicated calculations that higher earners have to go through. The bankruptcy court understands that people file for Chapter 7 precisely because they're in dire financial straits, and having no income is often the ultimate demonstration of that reality.

However, there's an important caveat: While you can file with no income, you'll still need to pay the court filing fee and potentially cover your attorney fees if you hire a lawyer. Some courts will allow you to pay the filing fee in installments, though, and in cases of extreme hardship, you may be able to get the fee waived entirely. You'll also need to complete credit counseling before filing, which typically comes with more out-of-pocket costs, though fee waivers are sometimes available.

Additionally, the court will look at your overall financial picture beyond your income. They'll examine any assets you have, your household size and your reasonable monthly expenses. If you have significant assets that aren't protected by bankruptcy exemptions, the trustee could sell those assets to pay your creditors, even with no income.

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What other debt relief options should you consider with no income?

If you're considering Chapter 7 but are worried about the costs involved or are uncertain about the process, it's generally worth exploring other debt relief options that might be more accessible. Many creditors would prefer to work out a payment arrangement rather than get nothing through bankruptcy, so reaching out directly to negotiate can sometimes yield results, especially if you can document your financial hardship.

Debt relief companies can also help negotiate settlements with creditors on your behalf, potentially reducing your total debt owed. However, these programs come with fees and will typically require you to make monthly payments into a dedicated account, which can be challenging without any income. Your settled debts may also have tax implications, as forgiven debt over $600 is often considered taxable income.

Credit counseling is another option. These experts offer debt management plans that can consolidate your monthly payments and reduce your interest rates and fees, but again, these require you to make regular monthly payments. However, the fees for this type of debt relief tend to be nominal, especially compared to those of a debt relief company. If you have no income currently but expect to be employed soon, this route might be worth revisiting once you're earning again.

For those with absolutely no income and no prospect of income in the near future, though, Chapter 7 bankruptcy could remain the most practical solution. It provides immediate relief through the automatic stay (which stops collection actions) and can eliminate most unsecured debts. And, unlike Chapter 13 bankruptcy, which requires a repayment plan over three to five years, Chapter 7 doesn't require ongoing payments to creditors.

The bottom line

Filing for Chapter 7 bankruptcy with no income is not only possible but may actually improve your chances of qualifying under the means test. While you'll need to handle some upfront costs and navigate the court system, having little or no income demonstrates the financial hardship that Chapter 7 is designed to address. If you're drowning in debt without any way to pay, consulting with a bankruptcy attorney or a debt relief expert can help you understand whether Chapter 7 is your best path forward or whether other debt relief strategies might work better for your situation.