Understanding the Means Test in Chapter 7 Bankruptcy

When filing bankruptcy, there is not one solution that is right for everyone. Chapter 7 bankruptcy allows you to discharge, or eliminate, all or most of your unsecured debts. This makes Chapter 7 a very attractive option for debtors because they are no longer responsible for their debt. However, because Chapter 7 allows you to eliminate much of your debt, there are also different eligibility requirements and rules throughout the process. One of the main eligibility requirements is the means test. Our Orlando Chapter 7 bankruptcy attorney explains below more about the means test.
What is the Means Test in Chapter 7?
The means test was introduced as part of a major overhaul to the bankruptcy system in the United States in 2005. The test was written into the law to prevent wealthy individuals from discharging debt they were able to repay, essentially limiting the amount of bankruptcy fraud occurring in the country. As such, the means test simply determines if you have enough income to repay your debts. Unfortunately, making that determination is not as straightforward.
The first step in the means test is determining whether your current monthly income is more than Florida’s average income for the size of your family. All sources of income, including tips, commissions, child support, and more are calculated in your current monthly income. The only income that is not included are Social Security benefits. Your income for the six months prior to filing bankruptcy is used to determine your current monthly income.
If your income is less than the state’s average, you do not need to do anything else, as you will pass the means test. If you earn an equal amount or more than the state’s average, you will not automatically fail. However, you will have to take an additional step.
The next step requires you to deduct your monthly expenses from your current income to determine your disposable income. The higher your disposable income is, the harder it is to file Chapter 7 bankruptcy.
Options if You Do Not Pass the Means Test
Not passing the means test does not necessarily mean that you cannot file bankruptcy. It only means you cannot file Chapter 7 bankruptcy. Fortunately, there are other options.
Many people who do not qualify for Chapter 7 file Chapter 13 instead. Chapter 13 bankruptcy may discharge some of your debt but most of it will be reorganized into a repayment plan. The repayment plan will make it easier to pay off your debts because it will extend between three and five years. As long as you continue making payment according to the plan, creditors cannot contact you regarding the debt, which can also make life less stressful.
Our Chapter 7 Bankruptcy Attorney in Orlando Can Explain Your Legal Options
If you are struggling with a high amount of debt, you do have legal options. At Florida Law Advisers, P.A., our Orlando Chapter 7 bankruptcy attorney can advise you of what those are, help you determine which one is right for you, and guide you through the appropriate process. Call us today at 1 (800) 990-7763 or contact us online to schedule an appointment with our attorney and to learn more about your legal options.
Source:
law.cornell.edu/uscode/text/11/chapter-7