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Understanding the bankruptcy means test

If you count yourself among the many people across Florida who are struggling with mounting debt, you may be giving some thought to the possibility of filing for bankruptcy in an attempt to make your finances more manageable. While you may know that there are different types of bankruptcy proceedings, among them a Chapter 7 bankruptcy and a Chapter 13 bankruptcy, you may know less about the distinctions between the two types, and whether one type may better suit your needs. At Kingcade Garcia McMaken, we understand the differences between varying types of bankruptcy proceedings, and we have helped many Floridians facing overwhelming debt identify the best course of action for their circumstances.

If you believe a Chapter 7 bankruptcy may be in your best interest, the first step, per Nerdwallet, is determining whether you can qualify for this type of debt relief. To determine eligibility, you must undergo what is known as the bankruptcy means test. At its core, the means test clarifies whether you can pursue a Chapter 7 bankruptcy, or whether you are ineligible for a Chapter 7 filing and should instead consider a Chapter 13 bankruptcy.

The main distinction between the two types is that a Chapter 7 filing essentially removes your debt obligations, but might require you to return your car, home or what have you. Meanwhile, a Chapter 13 bankruptcy requires that you pay back at least some portion of your debts. The first step in assessing your Chapter 7 eligibility involves comparing your household income with that of the median household in Florida. If your income is lower, you can automatically move forward with a Chapter 7 filing.

If not, you may still be able to pass the second part of the bankruptcy means test, but it is a bit more intensive. You will have to provide meticulous documentation about your expenses to determine how much "disposable income" you have left over to put toward debts. If this amount is above a certain threshold, you will not be able to pursue a Chapter 7 filing, but you may have other options at your disposal. More about bankruptcy is available on our web page.

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