In this article, you will learn…
- If Chapter 7 or Chapter 13 bankruptcy is right for you,
- What type of bankruptcy to file to save your home from foreclosure, and
- What the Chapter 7 bankruptcy means test is.
What Determines Whether I Should File A Chapter 7 Or A Chapter 13 Bankruptcy?
There are three main factors that will determine whether you should file for a Chapter 7 or a Chapter 12 bankruptcy. These factors are…
- Your income,
- What assets you want to protect, and
- How quickly you need relief.
The court will look at your last six months of income prior to filing to determine whether or not you qualify for Chapter 7 bankruptcy. If you don’t qualify, you will have to file Chapter 13.
You would want to file Chapter 7 bankruptcy if…
- You need debt relief quickly,
- You want to file for less money, and
- Your assets are exempt under Chapter 7.
You would want to file Chapter 13 bankruptcy if…
- Your income exceeds the limits for Chapter 7,
- You want to save your home from foreclosure, or
- Your assets are not exempt under Chapter 7 and you want to keep them.
Does The Type Of Debt I Have Determine The Chapter Of Bankruptcy I Should File?
The type of debt you have doesn’t determine the chapter of bankruptcy you should file unless you are trying to save your home from foreclosure. To save your home from foreclosure, you would need to file Chapter 13 bankruptcy.
In some complicated situations revolving around student loans and tax debts, you would want to do a Chapter 13 to stop the bleeding of the interest.
What Is The Chapter 7 Bankruptcy Means Test? What Are The Income Limits Under The Means Test?
The Chapter 7 Bankruptcy Means test is something that exists to determine whether you qualify for a Chapter 7 bankruptcy. This test looks at your household size and income for the past six months. It takes the gross average income and compares it to the median average for a similar household size in your state.
The median income average in your state changes, but the lower the number of people in your household, the lower the median income average. For each individual person that you have in your household, the income threshold will increase.
If you are at or below the median household income for your state, you would qualify for Chapter 7 bankruptcy. You would then not have to go through the means test. If you are over the median household income for your state, the means test gives you the opportunity to show what the court considers necessary expenses, such as…
- Taxes that get taken out of your paycheck,
- Medical insurance,
- Mortgage payments,
- Car payments, or
- Rent (if applicable).
Sometimes these necessary expenses can dilute that average and help you to qualify for a Chapter 7 bankruptcy or show that you really need to file for a Chapter 13 bankruptcy.
What If My Income Is Over The Means Limit?
If your income is over the means limit or median income, you can try to go to the means test and see if there is a way to qualify for a Chapter 7 by showing the court your necessary expenses.
If you can’t qualify for a Chapter 7, you then have to file a Chapter 13 and most likely will be in a five-year plan.
Some exceptions to qualifying for the means test are…
- If more than half of your debt is non-consumer debt,
- If half of your debt is medical, or
- If half of your debt is in student loans.
When it comes to your student loans, the debt that can impact the means test would be the portion of the loans that goes toward the actual tuition, books, and educational aspects rather than the living expense portion.
Outside of these exceptions, if your income average is too high and the means test doesn’t lower it enough to qualify you for Chapter 7 bankruptcy, you would have to file Chapter 13.
Will I Be Able To Preserve My Savings If I File For Bankruptcy?
In the state of Florida, you may be able to preserve your savings if you file for bankruptcy. There is something called a wildcard exemption which may protect up to $4,000 in savings if you don’t own a home.
There may be different exemptions available in other states, but in the state of Florida, you are most likely not going to be able to protect savings in excess of the $4,000 limit under the wildcard exemption. If you own a home and have $10,000 in savings, you are not going to be able to preserve those funds in a bankruptcy.
For more information on Chapter 7 Vs. Chapter 13 Bankruptcy In FL, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (407) 305-5599 today.