Changes to the Bankruptcy Means Test

There are changes afoot in Chapter 7 bankruptcy law. For those of you who don’t know, there is a means test required to file for Chapter 7 – which is known as a liquidation bankruptcy. In a bulletin from the US Courts, it was announced that new data from the Census Bureau concerning median family income information will be used for filling out the means test paperwork, and will take effect on November 1 of 2016. It will apply to all Chapter 7 petitions filed on or after that date.

The bankruptcy means test was put in place as part of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, and was intended to limit the use of Chapter 7 to those who are truly unable to pay their debts, while allowing other debtors with a larger amount of disposable income to re-organize their debt in a Chapter 13. The more disposable income you have, the less likely it is that you will be allowed to file your bankruptcy under Chapter 7, and will be required to file for Chapter 13 instead.

If your family’s income is less than the median income for the same size household for Florida, you can file for bankruptcy under Chapter 7. There are also certain standards under means testing that are meant to allow for necessary living expenses. These expenses are limited to food, housekeeping supplies, clothing and apparel, personal care products, medical services, prescription drugs, and medical supplies. There are also allowances for transportation, mortgage or rent payments, property taxes, insurance, maintenance, utilities, repairs, communications, internet, and cable.

If your income is higher than the state median for a family of the same size, you’re going to have to calculate if there is enough income to repay your creditors after reorganization in Chapter 13 or if you qualify for Chapter 7 due to the overwhelming nature of your debts. As you can see, the median income for a single earner in the state of Florida is $44,021, then it increases gradually depending on how many people there are in the family. This ensures that Chapter 7 is open only to those who have no other recourse to pay their debts, while at the same time keeping families housed, clothed, cared for, and fed.

Don’t worry if you don’t qualify for a Chapter 7 filing, there are lots of alternatives available when it comes to dealing with debt. While a Chapter 13 bankruptcy is more complex, we are confident that whichever path you take that we will be able to help. We offer free initial consultations in our West Palm Beach and Fort Lauderdale offices. If you are considering filing bankruptcy you do need a lawyer on your side to help you handle what is a complex legal matter. Only a lawyer – not a bankruptcy preparer, not an employee of the court, not your uncle Fred – can legally advise you of your of rights and responsibilities under the bankruptcy laws of the United States and the state of Florida.