Bankruptcy is oftentimes the only way for an individual to obtain help and relief from devastating debts. In order to file for bankruptcy under U.S. law, you must first take a means test to determine whether your disposable income is low enough to qualify for bankruptcy. The means test takes into account your income, expenses and family size to determine whether you have enough disposable income to repay your debts. Although it was designed to restrict the number of debtors who can get their debts forgiven through a Chapter 7 bankruptcy, most of our clients who take the means test qualify.
Specifically, the means test has two sections, which are designed to see if you have any disposable income that you could put toward paying off the debt that you owe. The first section relates to income, the second section to allowable expenses. Information regarding those two aspects of your finances are submitted to the court on a document known as the means test.
The test is for those who have primarily consumer debts, like credit card, debt, lawsuits, medical expense debt, etc. You do not need to pass the means test if the debt is primarily from a business that you own. For Chapter 13 bankruptcies, the test plays a role in setting up a repayment schedule.
The first part of the means test in Florida determines whether your household income is lower than the State’s median income. The Census Bureau Median Family Income Chart for 2020, states the following mean incomes:
| 1 Person | $51,559 |
| 2 People | $62,736 |
| 3 People | $68,944 |
| 4 People | $82,560 |
You must enter all of your income, whether it is taxed or not, except the following: payments received under the Social Security Act, payments to victims of war crimes or crimes against humanity, payments to victims of international or domestic terrorism. Some examples of income that should be declared include, wages, salary, tips, bonuses, commissions, net income from operation of a business, interest, dividends, rental income, pension and retirement income, regular child support and alimony, workers’ compensation payments, state disability insurance, annuity payments and the like. While the means test is based on the past six months of income, there are adjustments for recent or upcoming variations. For instance, you were employed for three of the last six months, but now are not employed. The means test will factor in the reduction in income. Conversely, if you recently obtained a new job and are making more money, that increase will be considered as well by the Bankruptcy Court.
In, short, if you are below the median income, you’ve passed the means test and can file for Chapter 7 bankruptcy. You will automatically pass and qualify for Chapter 7 bankruptcy if your income is below the median gross income referenced in the chart above. The means test presumes that low-income debtors cannot pay back creditors. Now, you’ll automatically pass if your gross income is below the median income for Florida as stated above. If your income is above the median, you do not automatically fail, which leads to the second part of the means test.
In the second part of the means test, you subtract the allowed expenses from your gross income. If the amount that remains is not enough to make a meaningful payment to your creditors, you will still qualify for a Chapter 7 bankruptcy discharge.
If you’re filing for Chapter 13 bankruptcy, either because you can’t meet the test for Chapter 7 or you want to keep some of your assets, the allowable-expenses portion of the test will be used when working out the terms of your repayment plan under Chapter 13.
Our Florida attorneys fight in Bankruptcy Court for your financial freedom and your family’s well-being. We file bankruptcy cases in Broward, Palm Beach, Martin, St. Lucie and Okeechobee counties.