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What the means test imply for my Chapter 7 bankruptcy filing?

On Behalf of | Oct 6, 2023 | Chapter 7 Bankruptcy

You might have heard that before the court will approve your filing for Chapter 7 bankruptcy protection, you must pass a means test. This test’s purpose is to restrict the number of American consumers who can eliminate all or most of their debts through Chapter 7 bankruptcy, also known as liquidation bankruptcy. Before filing for Chapter 7 or deciding to file for Chapter 13 bankruptcy instead, you should know what the means test involves and whether you would pass it.

Means test, part one

The test contains two steps. The first part is determining if your income is too high to qualify for Chapter 7. This involves comparing your household income for the past six months with Florida’s median household income. If your income falls below the state median, you can file for Chapter 7. If it’s above the median, you still have a chance to get approved, but it’s more a complicated procedure.

Proving you lack disposable income

Part two requires you to show that, despite your relatively high income, your expenses are too high to leave you with enough disposable income to pay off your credit cards or other debts. Your receipts and billing statements for groceries, medical copays and insurance premiums, auto payments and so on can show that you need Chapter 7 liquidation to deal with your overwhelming debts. The court will compare your expenses with both local and national cost standards and decide if you qualify.

Not the only way to handle debt problems

If you qualify for Chapter 7, you likely will have to give up many of your assets, such as your home. This is worth it for many people, but if you have the means and want to keep your home, Chapter 13 bankruptcy could be the better option for getting your debt under control. Knowing the benefits and drawbacks of each form of bankruptcy, along with other possible options for restructuring or reducing your debt load, is essential before you can make the right choice.

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