While Chapter 7 does provide individuals with the opportunity to discharge their unsecured debts, the law surrounding it can be complex to deal with. However, Chapter 7 bankruptcy is not easy to qualify for. There is a means test which determines whether you are eligible.
The means tests assess your income, expenses, and financial situation to ensure that only those who truly cannot repay their debts can file under Chapter 7. The details of this test can vary depending on state guidelines, household size, and allowable deductions.
Misunderstandings or errors in the application process can cost time, money, and energy. Therefore, it is essential to consider professional guidance and get help from a lawyer in Orlando.
What is the Chapter 7 bankruptcy means test?
The Chapter 7 bankruptcy means test is a vital test that determines your eligibility to file for Chapter 7 bankruptcy in Florida. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 developed the means test to prevent individuals from discharging their debts if they are capable of repaying them using their assets.
Eligibility criteria
In order to qualify for the means test, a debtor’s current monthly income must be lower than the median income level for their household size in the state. The median income limits for the current year are as follows:
- 1 person– $62,973
- 2 people– $77,639
- 3 people– $89,908
- 4 people– $104,069
- 5 people– $113,969
For every additional household member, increase the amount by $9,900.
How does the means test work?
The main purpose of the means test is to determine whether the individual has sufficient funds to repay their debts. If the means test shows that you can repay your debts, you may be required to file under Chapter 13 bankruptcy instead.
Step 1– Evaluating current monthly income.
The first step is assessing your monthly income. You can calculate this by looking at your monthly income 6 months prior to filing for bankruptcy. This income can be derived from various sources, including salaries, wages, bonuses, and other income types.
Once you have calculated your current monthly income, compare it with median income for households of equivalent size in Florida. If the current monthly income is below the median, you pass the means test. If you do not pass the test, go to the next step.
Step 2– Means test calculation (if needed).
If your current monthly income exceeds the state median, you have to do the Means Test Calculation using Bankruptcy Official Form 122A-2. This test involves deducting your essential expenses for living and working to determine your disposable income.
If the disposable income is found to be more than $137 per month over five years, it is presumed that you can pay back your debts and thus you cannot file for Chapter 7 bankruptcy. Moreover, when calculating the disposable income, it is important to know which expenses are deductible. There are standards set by the IRS and local authorities.
Exceptions in the means test
There are certain exceptions that allows you to file for Chapter 7 bankruptcy even if you fail the means test.
The non-consumer debt exemption is for individuals who have non-consumer or business debts. If your business debts exceed 50% of your total debt, you qualify for this exemption. Another is the disabled veteran exemption, where disabled veterans can qualify if their debts were incurred while they were on duty or during homeland defense activities.
There is also a military reservists or National Guard members exemption. If you were called to active duty after September 11, 2001, you qualify for the exemption.
Protect your future today!
Filing for Chapter 7 bankruptcy may be the only option left for some individuals. However, being denied can be disheartening and cause distress due to the uncertainty of the future. Hire a bankruptcy attorney in Florida today to maximize your chances of qualifying!
