Many first-time bankruptcy filers in southern Florida look to Chapter 7 for the complete discharge of their debts. While Chapter 7 can provide extensive relief from consumer and other kinds of debt, anyone who wishes to seek such relief must pass what is known as the “means test.” The United States Congress feared that too many debtors would use Chapter 7 without really deserving the protection that this chapter offers that it enacted a statute that required all would-be Chapter 7 petitioners to prove they deserve to have their debts forgiven. This statute created the “means test” and gave states the power to establish financial thresholds that entitle a person to seek Chapter 7 relief.
The means test in Florida
Only petitioners whose debts are primarily consumer debt must pass the means test. People who owe debts to banks for financing need not pass the test. The means test can be simply stated. A person whose income is below the Florida median income for a household of comparable size passes the test. Complexity occurs in calculating a person’s median income.
The means test calculation
Florida has established median income levels for 10 household sizes. The threshold starts at $41,334.00 for a single person household to $111,796 for a 10-member household. In calculating median income, the potential petitioner must first gather all sources of income, including business income, salaries and wages, interest and dividends, pensions and unemployment income.
The potential Chapter 7 petitioner must then reduce median income by deducting various allowed expenses. The net income established by this calculation determines a person’s eligibility for Chapter 7. First, the person’s income must be sufficient to pay creditors under a Chapter 13 plan. Next, the potential petitioner must determine average monthly income over the next 60 months. If this number is less than $7,475 the person is automatically eligible to file a Chapter 7 petition. If the number is more than $12,475, the person is permanently disqualified from seeking relief under Chapter 7. If the monthly income number is between $7,475 and $12,475, further calculations must be completed to determine eligibility for Chapter 7.
Even if a person is mathematically eligible to file a Chapter 7 petition, doing so may not be the best solution to financial hardship. The advice of an experienced bankruptcy lawyer can be very helpful in sorting through the various options, examining applicable state and federal exemptions, and deciding whether Chapter 7 or Chapter 13 will provide the most effective relief.