How Do I Know if I Qualify for Chapter 7 Bankruptcy?

 Posted on July 20, 2021 in Bankruptcy

If you have significant debts, bankruptcy can offer a way out of this difficult situation. Chapter 7 bankruptcy may be the ideal choice for you, since it will allow you to complete the bankruptcy process quickly, usually within a few months. You may be required to surrender certain non-exempt assets, which will be liquidated to repay some of the debts you owe. Once the bankruptcy process is completed, any debts included in the bankruptcy will be discharged, and you will no longer be required to pay them, giving you the fresh financial start you need. However, to qualify for Chapter 7 bankruptcy, you must meet certain requirements, which are known as the “means test.”

Understanding the Chapter 7 Means Test

As the name of the means test implies, it is meant to determine whether you have the financial means to pay back some of the debts you owe. The means test has two parts, and you will need to fill out a separate form for each part:

• Form 122A-1: Statement of Your Current Monthly Income - On this form, you will list the average monthly income you earned from all sources over the past six months. In addition to the wages you earned through employment, including tips, commissions, bonuses, and overtime pay, you will also include any alimony or spousal support payments you receive, interest from savings, dividends from investments, royalties, income from a business or rental property that you own, unemployment benefits, and income from a pension or retirement savings account. If you are married, you will also need to list your spouse’s income, even if they will not be filing for bankruptcy with you. After totaling all forms of income, you will compare this amount with the median income in your state for the number of people in your household. In Florida, the median income for one person for 2021 is $53,182. If your income is less than the median income, you will qualify for Chapter 7 bankruptcy. Otherwise, you will need to complete the second part of the means test.

• Form 122A-2: Means Test Calculation - This form will subtract any applicable expenses to determine your monthly disposable income. Deductions may include expenses for food, clothing, healthcare, mortgage or rent payments, utilities, auto loan or lease payments, public transportation, taxes withheld from your pay, involuntary deductions from your pay such as retirement contributions or union dues, life insurance premiums, court-ordered payments such as child support or spousal support, educational expenses required for employment, special education for a child with a physical or mental disability, child care costs, educational expenses for children, expenses related to providing care for an elderly or disabled family member, certain types of home energy expenses, and ongoing charitable contributions. After subtracting all deductions, your monthly disposable income will be multiplied by 60 to determine your total disposable income over five years. If this amount is below a certain threshold, you will qualify for Chapter 7 bankruptcy. If it is above the threshold, you will qualify for Chapter 7 if the amount is less than 25% of the total unsecured debt you owe. However, even if your disposable income is above this amount, you may still be able to qualify for Chapter 7 by demonstrating that there are special circumstances that have led to additional expenses or require adjustments to your monthly income.

Contact Our Ft. Lauderdale Chapter 7 Bankruptcy Lawyer

Elliot Legal Group can help you compile the necessary financial information to determine whether you pass the means test. We will work with you to ensure that you will be able to complete the bankruptcy process successfully, eliminate your outstanding debts, and regain financial security. Contact our Sunrise, FL bankruptcy attorney at 754-332-2101 to learn more about our legal services.

Sources:

https://www.flsb.uscourts.gov/faq/means-testing-what-it-where-can-i-find-information-it

https://www.creditkarma.com/advice/i/chapter-7-bankruptcy-means-test

https://www.justice.gov/ust/means-testing