Chapter 7 Bankruptcy

Chapter 7 bankruptcy helps clear away debts and gives you a fresh start. Most cases are finished in about 90 to 120 days if handled correctly by an experienced lawyer. People often call it "credit card bankruptcy" because it is a common way to erase credit card debt. It can also get rid of medical bills, personal loans, and other debts that don’t have property tied to them. Most people can keep their house, car, and other belongings as long as they fit within the bankruptcy rules. However, if you are behind on your mortgage or car payments and want to keep them, you must catch up on payments before filing. If you can’t, you may need to file Chapter 13 bankruptcy instead, which allows you to pay off missed payments over three to five years.

If you want to file for Chapter 7 bankruptcy, you must pass the Florida means test. This test only applies to people with higher incomes. If your income is below the Florida median for your household size, you don’t have to take the test and can file for Chapter 7.

If your income is above the median, you must complete the means test to see if you need to repay some of your debts through Chapter 13 bankruptcy.

Who Is Exempt from the Means Test?

• If most of your debt is from a business and not personal expenses, you don’t have to take the test.
• If you are a disabled veteran and got into debt while on active duty or during a homeland defense mission, you are also exempt.

How the Means Test Works in Florida

More people are becoming familiar with bankruptcy and asking if they pass the Means Test. Passing can be simple, or it may require detailed calculations. It depends on your income level compared to the median family income for a household of your size.

While the best way to know for sure is to have an experienced Florida bankruptcy attorney complete a full Means Test analysis, here is a general overview of the process:

Six-Month Period: First, determine the six-month Means Test period, which includes the past six full calendar months, not the current month. For example, if today is December 10, the relevant period would be June 1 through November 30.

Your Gross Income: Add up all the gross income (before taxes) you received during that six-month period. Only include money you actually received, not income you earned but haven’t yet been paid.

Annualized Income: Multiply your total six-month income by two to calculate your estimated annual income.

Spouse’s Gross Income: If you are married and living with your spouse, repeat steps 2 and 3 for your spouse’s income.

Total Household Income: Add your annual income to your spouse’s annual income to get your total household income.

Household Size: Determine the number of people in your household, including you, your spouse, and any dependents living with you.

Florida’s Median Income: Find the median family income for a household of your size in Florida by checking the Census Bureau’s current median income figures.

Below Median Income: Compare your total household income to the Florida median income for your household size. If your income is less than or equal to the median, you pass the Means Test.

Above Median Income: If your income is above the median, you must complete a more detailed calculation using an 8-page federal bankruptcy form to determine eligibility. A bankruptcy lawyer should always handle this step.

Always Consult a Lawyer

The Means Test has exceptions and nuances, and the steps above may not apply in every case. You should not rely on these steps alone to determine eligibility. A bankruptcy attorney can analyze your financial situation and guide you through the process.

Usually, the answer is YES.

In a Chapter 7 bankruptcy, the goal is to receive a Discharge, which eliminates qualifying debts. However, this comes with a trade-off—you may need to give up certain assets. Specifically, any property that is considered "non-exempt" may be subject to liquidation. But what exactly does "non-exempt" property mean?

The process begins with creating a comprehensive list of everything you own, which will be filed with the Bankruptcy Court. Items are grouped for simplicity—for example, instead of listing each individual pan, we include "pots and pans" as a single entry. Along with this list, we provide an estimated value for each item, based on its used, as-is replacement cost.

From this inventory, you can claim certain property as “exempt,” meaning it is protected from creditors. The specific exemptions available to you depend on factors such as where you have lived for the past 2 ½ years and whether you own real estate you wish to protect. Exempt property is shielded from the bankruptcy trustee, who represents creditors in the process. Any assets that do not qualify for an exemption are considered “non-exempt” and may be subject to liquidation to pay creditors.

It is possible to negotiate a payment or series of payments to the trustee that accounts for the value of your non-exempt property. This is called a "buy-back."