Do I Qualify For Chapter 7 Bankruptcy?
Individuals who are in serious debt often consider filing for Chapter 7 bankruptcy. Bankruptcy refers to a legal proceeding through which a person who can’t pay their bills can get a fresh start in their financial life. Chapter 7 is the most common type of bankruptcy, which most people use to get back to their financial feet. In fact, the American Bankruptcy Institute (ABI) records show that 63% of the total bankruptcies filed in 2019 were Chapter 7. Chapter 7 bankruptcy is also referred to as “liquidation bankruptcy” or “straight bankruptcy.” Basically, it helps discharge most of an individual’s unsecured debt, including credit card debt, personal loans, and medical bills. By filing for Chapter 7, an individual’s non-exempt assets are liquidated under a trustee’s supervision and the proceeds distributed among creditors. Any pending debts after the liquidation process are forgiven or wiped off, and the individual is granted a fresh start.
Qualifications for Filing Chapter 7 Bankruptcy in Florida
While Chapter 7 is the quickest and simplest type of bankruptcy, it isn’t always straightforward. Given the details and legal processes surrounding Chapter 7 bankruptcy, it is advisable to work with a bankruptcy attorney. Besides representation, a bankruptcy lawyer can help you determine if you qualify for Chapter 7 bankruptcy.
Some of the factors that determine qualification for Chapter 7 bankruptcy in Florida include:
- Florida bankruptcy means test
- Bankruptcy credit counseling courses
Each of these factors may affect your ability to file Chapter 7 bankruptcy in Florida. Read on to find out how.
Florida Bankruptcy Means Test
Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act back in 2005, which saw significant changes to the bankruptcy law. One inclusion in the Act is the requirement that all Chapter 7 applicants pass the bankruptcy Means Test. The Means Test is meant to reserve Chapter 7 bankruptcy protection for those who truly need it.
Generally, the Means Test requires applicants to earn an income lower than the specified amount to be eligible to file Chapter 7 bankruptcy. Here’s how the bankruptcy Means Test works to determine eligibility in Florida.
The first step of the Bankruptcy Means Test in Florida is a simple check and comparison of incomes. An individual passes this first part of the Means Test if their average income over the most recent six months is below the Florida median income for a household size the same as theirs. Individuals whose income is above the Florida median income will need to do other calculations to determine their eligibility for Chapter 7 bankruptcy. Individuals can compare their incomes against those in the table below:
|Household Size||Monthly Income||Annual Income|
The second part of the Means Test involves calculating an individual’s monthly disposable income. It is determined by subtracting all allowable expenses from the gross monthly income. The monthly disposable income is then projected for five years by multiplying the figure obtained by 60. If the projected disposable income is below $7,025, then an individual passes the Means Test. However, if this figure is above $11,725, one is deemed to have failed the Means Test.
What does that mean for individuals whose projected disposable income is between $7,025 and $11,725? Such individuals will pass the Means Test provided their disposable income is less than 25% of the unsecured debt owed.
Normally, individuals with higher disposable incomes are less likely to pass the Means Test in Florida. However, they may still qualify to file for Chapter 7 bankruptcy if they successfully prove that some special circumstances necessitate filing for Chapter 7. Individuals may be exempted from the Means Test if:
- Their debts are not particularly consumer debts
- They are veterans with a disability and incurred their debt during active duty or when performing a homeland defense activity.
Bankruptcy Credit Counselling Courses
Pre-Bankruptcy Credit Counseling
When filing for Chapter 7 bankruptcy in Florida, one must show that they have completed a credit counseling course. According to the federal bankruptcy law, the course must be taken 180 days before filing and must be from an agency approved by the U.S Trustee’s office. Individuals who file without taking this course risk having their case dismissed by the court. Where a case is dismissed, the applicant loses the filing fee, and creditors can also begin collection activities again.
Spouses who file for Chapter 7 bankruptcy jointly in Florida must complete the course separately. Individuals will prove that they have taken this course by filing the certificate of completion along with their bankruptcy paperwork. This should be done no later than 15 days after the date of filing for bankruptcy.
Individuals filing for Chapter 7 bankruptcy often ask why this course is mandatory. Pre-bankruptcy credit counseling helps one find out whether they need to file for bankruptcy and whether an informal repayment plan would be a better option. Such counseling is required even when it is obvious that a repayment plan won’t help (where debts are too high and incomes too low).
Based on an individual’s incomes and expenses, the credit counseling agency prepares a budget to help review their debt repayment options. For most bankruptcy cases, the agency will confirm that an individual doesn’t have any feasible debt repayment options apart from filing for Chapter 7 bankruptcy. Individuals can find an approved agency by visiting the U.S Trustee’s website and choosing one from their court’s jurisdiction.
Exceptions to Pre-Bankruptcy Credit Counseling
Under the federal bankruptcy laws, the court can only allow an individual to complete the pre-bankruptcy credit course after filing for Chapter 7 bankruptcy if all of the following conditions are fulfilled:
- You sought credit counseling from an approved agency within at least five days before filing, and the agency couldn’t provide it;
- There were emergency circumstances that necessitated immediate filing. In this case, the court will decide what qualifies to be an emergency circumstance;
- A certification stating the facts about the two conditions above must be filed with other bankruptcy documents.
Post-Bankruptcy Debtor Education
Individuals must also take a debtor education course after filing for bankruptcy. This course is meant to equip individuals with financial management tips like coming up with a budget and regaining credit after bankruptcy. Individuals are expected to file the certificate of completion with the court to prove that they have taken this course. Agencies may also file the certificate on behalf of the individuals, and the filing must be done within 60 days of the date set for the 341 hearing (meeting of creditors).
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