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Unemployment benefits and bankruptcy filings

On Behalf of | Apr 11, 2017 | Chapter 13 Bankruptcy |

When Ohio consumers file for Chapter 13 bankruptcy, they must submit a repayment plan that has to be approved by the court. The repayment plan takes between three and five years, and it is generally based on the income of the debtor. A March bankruptcy court ruling indicates that individuals who are filing for Chapter 13 may be required to count unemployment benefits as income.

Shortly after she and her husband filed for bankruptcy, a woman in New Mexico lost her job and began to collect unemployment benefits. The woman stated that her benefits were received under the Social Security Act, so they should not be included as part of the income required to be factored in when creating a repayment plan.

The trustee appointed to handle the case disagreed, and the U.S. Bankruptcy Court for the District of New Mexico agreed with the trustee. While many have argued that unemployment benefits fall under the Social Security Act, the court held that they did not. As a result, the unemployment benefits that the woman was receiving would need to be counted as income. The court noted that the Workforce Solutions Department administered the state’s unemployment system and that state law is what determines whether someone is eligible for unemployment.

Debtors who have a regular source of income might be able to qualify for Chapter 13 bankruptcy. One of the benefits of this particular chapter is that unlike under Chapter 7, debtors are not required to have their non-exempt assets liquidated with the proceeds used to pay off creditors. Instead, they can keep their property, and upon the successful completion of the plan most remaining unsecured debt is discharged. An attorney can explain the other requirements associated with this chapter.


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