To qualify for Chapter 7 bankruptcy, the court compares your household’s last six months of gross income to the median income for a household of the same size. If you’re married, your spouse’s income will be combined with yours (even if they don’t file for bankruptcy). If you’re married with two kids, the court will compare your household income to the income of an “average” family of four.
If we take a look at your last six months of pay stubs and find your average income, we can find where you fall compared to that “median income” – if you fall at or below the median, you qualify for a Chapter 7.
If you fall above the median income, you must go through the “means test”. This Is a formula that allows us to input your extra expenses, the taxes that are taken out of your paycheck, your medical insurance, your car payment, your mortgage payment, and other things of that nature.
Sometimes, when we input those numbers, clients who didn’t qualify at first suddenly will. If you input those numbers and the means test still shows that you are above the income range to qualify for Chapter 7 bankruptcy, you’ll have to file under Chapter 13.
This is the qualification process for determining whether to file Chapter 7 or Chapter 13 bankruptcy… Unless you qualify for an exemption. The most common exception for people making more than the average income applies if 51% of the debt is “non-consumer debt”.
Non-consumer debt typically comes into the picture when you own a business. If the debts which result from your company are more than your debt for personal items, you’re probably going to qualify for Chapter 7. Alternatively, you might be able to qualify for this Chapter 7 exemption if you have more medical debt than credit card debt.
Dischargeable Debts In Chapter 7 Personal Bankruptcy
Before we get started talking about what debts can be discharged in a Chapter 7 bankruptcy, let’s have a look at what kinds of debt can’t be discharged…
- Taxes can be dischargeable in the right situation, but more often they are not.
- Child support and alimony are never dischargeable.
- Private governmental debts, (like restitution), aren’t going anywhere.
- If you owe certain governmental institutions, you might be able to get rid of the debt, but it’s not a wise move to count on it.
- Some attorneys don’t like when I say student loans are not dischargeable, but by and large, they’re not. Are there exemptions? Sure. Have I ever seen one or been a part of one? No. It is always a wise thing to have your attorney look into whether your current student loan situation has a chance at qualifying for discharge, although that will require adversarial proceedings(litigation) as student loans are never discharged automatically(unlike most other debt involved in bankruptcy proceedings).
- Finally, if a creditor were to object and they had a valid reason as to why a certain debt shouldn’t be discharged, you may end up with a debt that’s not dischargeable.
Now, let’s take a look at debts that typically can be discharged in a Chapter 7 bankruptcy:
- Credit card debt,
- Medical debt,
- Personal loans,
- Cash advances,
- Utility bills,
- And more…
As you can see here, the types of debt that can be discharged tend to vary from case to case. The best way to find out what debts you can discharge through filing for bankruptcy is to consult with an attorney who specializes in these types of cases.
Asset Exemptions In Florida
The exemption of assets in a Chapter 7 bankruptcy case varies depending on which state the filing happens in. For the purposes of this book, we’re going to be talking about exemptions that are available in the state of Florida…
If you own a home in Florida and have had it for at least 41 months, your home will be fully exempt from the bankruptcy process. If you have owned your home for a shorter period of time than that, a good portion of the equity will be exempt, which still satisfies most people.
This means that for the most part, a home that you own is going to be safe from the court when you file (though if you’re not paying your mortgage, that’s another story).
Florida only allows an exemption for $1,000 worth of equity in a motor vehicle. However, most people have car payments, which means that there are liens attached to the car or that there is barely any equity involved. So, typically speaking, your cars will be safe.
If you don’t own a home, you get an extra $4,000 exemption space that you can use for a car or a tax refund.
Personal Property Exemption
This exemption is for $1,000 worth of belongings, furniture, clothing, and other things of that nature.
It’s important to remember that most items are valued at a lower rate than what you initially paid because the concern is about what you can get for them now, not what you paid for them in the past.
The above exemptions are how you will protect your belongings from exposure to the bankruptcy process. Most people will be okay filing a Chapter 7 bankruptcy under these exemptions, but not everyone.
For example, if you own your car outright, there’s a good chance the equity is worth more than $1,000. If you own a car but you don’t own a home, there’s a good chance that the wild card exemptions will protect you, and you’ll be okay. However, if you own your home and car, you’ll likely have to pay some money to the bankruptcy court.
With the guidance of a skilled attorney for Bankruptcy Law Cases In Florida, you can have the peace of mind that comes with knowing that we’ll make it look easy. For more information on Eligibility Requirements For A Chapter 7 Bankruptcy, an initial consultation is your next best step. Get the information and legal answers you seek today by calling (407) 305-5599.