Most Floridians understand the difference between a Chapter 7 bankruptcy petition and a petition under Chapter 13. In a Chapter 7 case, the court has the power to discharge, that is, declare uncollectible, most debts of the petitioner. In a Chapter 13 case, the petitioner must prepare and abide by a plan to pay existing debts by a specified deadline. Very few debts are discharged in a Chapter 13 proceeding.
The basic income limits
In order to file a Chapter 7 petition, the debtor must demonstrate compliance with an income test, usually called the “means test.” Each state, including Florida, has different financial standards for passing the means test. The income limits for the Florida means test are re-calculated every six months.
As of November 1, 2023, the income limit for a single-person household was $60,483. A two-income household could earn an additional $14,086 and still satisfy the means test. The top income limit for the Florida means test is $149,454 for a family of nine. Calculating the limit is relatively simple; a visual inspection of the income limit chart will quickly reveal the applicable limit.
Determining which sources of income can or must be counted is not so simple. Obvious sources are salaries or wages, spousal income, mandatory overtime income, income reported on Form 1099, rental income, child support and alimony, pension and retirement income, annuity income, and workers’ compensation benefits.
Statement of Exemption from Presumption of Abuse
Persons desiring to file a Chapter 7 petition have two additional routes to passing the means test. A petitioner can file the Statement of Exemption from Presumption of Abuse. This form provides an opportunity for the debtor to demonstrate that, despite high income, the petition still requires bankruptcy relief.
Means test calculation
Another form is the Chapter 7 Means Test Calculation. This form allows the debtor to subtract certain expenses from the average monthly income. These expenses include union dues, retirement plan payments, and uniforms. Another expense is health, disability and term life insurance premiums. Payments on secured loans used to purchase an automobile or a home are also deductible.
Consequences of failing the means test
A petitioner who fails to pass the means test can file a petition under Chapter 13 or seek assistance from a debt consolidator. Filing an application for relief from the means test can be complex, and the assistance of an experienced attorney may be helpful.
