What Is The “Means Test?”
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When the Bankruptcy Code changed in 2005 a test, called the “Means Test” was added to determine if you would qualify for the complete removal of your debts through a Chapter 7 Bankruptcy. The bar was raised in 2005 and now not everyone qualifies for a Chapter 7 Bankruptcy.
Those who do not pass the “Means Test” but still want to file for bankruptcy will have to file for a Chapter 13 Bankruptcy, which is simply a payment plan ordered by the Bankruptcy Court to repay their creditors.
The “Means Test” has two parts. The first part simply compares your current family income to the median income for a family of your size in the State of Florida. If your current family income is higher than the median income for a family of your size in Florida you do not automatically qualify for a Chapter 7. You must go on to the second part of the “Means Test” to see if you qualify for a Chapter 7 Bankruptcy.
The second part of the “Means Test” is a somewhat complicated formula, but a bankruptcy attorney will be able to help you determine whether or not you qualify for a Chapter 7 Bankruptcy. Part of the formula is based upon IRS guidelines that determine “allowable expenses,” such as, rent, utilities, groceries, etc. These “allowable expenses” are subtracted from your current total family income to determine your level of “disposable income,” meaning the money you have left that you do not put toward your debts. If your level of “disposable income” is less than $6,000.00 over five years, you can qualify for a Chapter 7 Bankruptcy. If your level of disposable income” is $10,000.00 or more, you will have to consider filing a Chapter 13 Bankruptcy.
You are probably asking yourself, “what if I fall in between $6,000.00 and $10,000.00 of ‘disposable income’ after the formula is applied?” The answer to this question is not a simple one. You will have to compare your “disposable income” over the next five years to a percentage of your unsecured debt. This is done to determine whether or not any sort of payment plan for your debt is possible. If your “disposable income” is greater than 25% of your unsecured debts, then you are viewed as being over $10,000.00 worth of “disposable income” and will have to consider filing a Chapter 13. If your “disposable income” is less than 25% of your unsecured debt, you will have “passed” the “Means Test” and you can qualify for a Chapter 7 Bankruptcy.
If your income is below the median income for families in Florida, based on Census Bureau statistics, you will be eligible. If you make more than the median income for families in Florida, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support due, and school expenses up to $1,500 per year. You won’t be eligible for a Chapter 7 Bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service’s national collection standards, you can still pay at least $6,000 ($100/month) to unsecured creditors over five years. If you don’t qualify for a Chapter 7 Bankruptcy, your only option would be a Chapter 13 Bankruptcy.
In Florida, for cases filed after February 1, 2008, the median income for a single wage earner is $42,468; for a family of two, it is $53,939; for three, $60,162; and for four, $71,124. Add $6,900 for each individual in excess of 4.