Chapter 7 Bankruptcy not for everyone – can you pass the means test?

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chapter 7Chapter 7 bankruptcy is the fastest legal way to discharge unmanageable debt.  However, many people who come to me for advice on filing bankruptcy are surprised to learn that they earn too much income to qualify for this form of debt relief.  This week, I spoke with a gentleman who was a perfect candidate for a chapter 7 bankruptcy: a recent divorce has left his personal finances in disarray, with a mortgaged house that neither he and his former wife can afford to pay.  However, this father of one earns $85,000.00 a year – too much income to qualify for chapter 7 bankruptcy.

So what’s the rule? Anyone who earns less than the median income of the state where they reside automatically qualifies for  chapter 7 bankruptcy.  Those who earn more than the median income must undergo “means testing.”    Means testing is a mathematic formula puts the finances of the debtor under the microscope – to examine whether the bankruptcy law will allow you to discharge your debts quickly in a chapter 7 bankruptcy.  It takes into account all your expenses in relation to the income you have earned during the last six months.  If, after deducting various allowable expenses (some actual, some permitted by law), you have more than $182.50 a month left over, you are considered to earn too much money for immediate debt relief.  Instead, you will have to seek debt relief under Chapter 13 and pay off your debts (or a portion of them) over time.

The median income is measured by the size of the debtor’s family and household.  Larger households have a higher allowance for income.  The bankruptcy code does not define “family” or “household” and the courts have different ways of defining the size of a debtor’s household.  Choosing the right income threshold for filing chapter 7 is the subject of an experienced bankruptcy lawyer’s advice.  Below is a table of the current median income figures for the State of Florida:

Median Income (11/1/10)

Period 1 Person 2 People 3 People 4 People 5 People 6 People 7 People 8 People Add’l
Year$39,383$49,321$53,713$64,084$71,584$79,084$86,584$94,084$7,500
6 Months$19,692$24,661$26,857$32,042$35,792$39,542$43,292$47,042$3,750
Month$3,282$4,110$4,476$5,340$5,965$6,590$7,215$7,840$625
SemiMth$1,641$2,055$2,238$2,670$2,983$3,295$3,608$3,920$313
BiWeek$1,515$1,897$2,066$2,465$2,753$3,042$3,330$3,619$288
Week$757$948$1,033$1,232$1,377$1,521$1,665$1,809$144

 

If you are wondering whether chapter 7 is available, contact my office to discuss your personal financial situation.  I provide a free 30 minute consultation without charge or obligation to anyone who is sincerely interested in finding out whether bankruptcy is the right option for debt relief.

 

 

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