Will You Lose Unemployment Benefits if You File for Chapter 7 Bankruptcy?
Unemployment benefits have been a lifeboat for many Floridians struggling with the cratering economy. Millions of fellow Floridians have filed for benefits at least once since the start of the coronavirus pandemic in mid-March. Without these benefits, many of our neighbors would have been unable to meet their basic needs.
Many clients are worried about losing property if they file for bankruptcy. This is certainly a possibility if you file for Chapter 7 protection. In this type of bankruptcy, the trustee can take assets, including cash in a bank account, in exchange for wiping out certain qualifying debts.
Fortunately, unemployment benefits are exempt from the trustee. This should provide comfort to those who are applying for benefits or have already been receiving them.
Florida Exemption for Unemployment Benefits
Florida has a list of exemptions that protect certain property from creditors, including creditors in bankruptcy. One of the most important exemptions is the homestead exemption, but others protect health aids and retirement accounts, among many other types of assets. However, the exemption for unemployment benefits is in a different part of the Florida Code.
Fla. Stat. § 443.051 states that unemployment benefits are “not alienable,” meaning they cannot be attached, assigned, or encumbered. This exemption applies to unemployment benefits paid under state law, as well as those benefits that are payable according to federal law.
Consequently, any unemployment benefits you have received are safe from the trustee if you file for bankruptcy. They will not be included in your bankruptcy estate, so they cannot be given to creditors. Also, filing for bankruptcy will not prevent you from filing for unemployment benefits if you qualify for them. This should be a relief for many people struggling to re-enter the job market during this difficult time.
Exception if You Owe Child Support
The law does allow benefits to be intercepted if you owe child support. The amount that the state can withhold will depend on when the support obligation was established and whether the order addressed unemployment compensation. For most people, 40% of their unemployment compensation can be withheld.
Of course, 40% of your unemployment benefits could exceed your child support order. In that case, the Department will refund the surplus. But if you owe unpaid support (arrearages), then the department will include those amounts in the support obligation.
Those with unpaid child support should consider whether Chapter 13 might be a better option. You cannot wipe out unpaid child support in a Chapter 7, but a Chapter 13 bankruptcy could give you more time to pay back what you owe.
Contact a South Florida Bankruptcy Attorney Today
At Nowack & Olson, we understand the difficulties that many members of our community are experiencing. Let us help you.
By filing for bankruptcy, our clients can eliminate many unsecured debts and regain their financial footing. Once debts are discharged, many of them can continue to make payments on non-dischargeable debts, such as support obligations, car loans, or their mortgage.
Contact us today to get started. Our Plantation bankruptcy attorneys offer free consultations, and you can schedule one by calling us at 888-813-4737.