Florida residents who have decided to file bankruptcy might wonder whether they qualify to file for Chapter 7 or Chapter 13. Since 2005, the means test has been the primary indicator of which chapter an individual can file. The test is a two-step process that determines whether a filer has sufficient income to repay creditors.
The first part of the test looks at your household income based on family size. If that income is less than the median for Florida, there is no need to proceed to the second part of the test. However, just because income is higher than the median does not mean that Chapter 7 is off the table.
In the second part of the test, disposable income is determined. Expenses are subtracted from your gross income to determine what income is left over after those expenses are deducted. Since many Chapter 13 plans range from three to five years, if the disposable income is less than $100 per month ($6,000 over five years), Chapter 7 may be filed.
Disposable income that is between the minimum of $6,000 and $10,000 requires a comparison with your unsecured debt. The money left over cannot be more than 25 percent of unsecured debt to file Chapter 7. Disposable income of more than $10,000 over five years would more than likely mean filing Chapter 13 rather than Chapter 7.
Understanding how the means test works can be a challenge. It would be advantageous to have a bankruptcy attorney to explain the process and ensure that the choice of either Chapter 7 or Chapter 13 will provide you with the best outcome possible for a clean financial slate. Once the choice is made, your attorney can help you through the process.