Once a person arrives at the decision to file for Chapter 7 bankruptcy, they are to be commended for being able to consider their financial circumstances both carefully and objectively. Indeed, it’s never an easy decision to take this step given the reality that at least some of their nonexempt assets will be liquidated by the bankruptcy trustee.
It’s important to understand, however, that once this decision is made, a person is not just free to proceed with their Chapter 7 filing. Indeed, they must satisfy certain eligibility requirements before moving ahead with the process, starting with the means test.
If the would-be filer’s currently monthly income is lower than the state median — currently $41,334 for a single earner in Florida — then they will likely be able to file for Chapter 7 provided they satisfy the other eligibility requirements, which we’ll address in subsequent posts.
However, if their current monthly income is higher than the state median, they must pass what is known as a “means test” as a way of determining whether their Chapter 7 filing would be “presumptively abusive” based on their financial circumstances.
In general, a filing is considered presumptively abusive if the would-be filer’s total current monthly income over the last five years — after subtracting certain expenses allowed by the federal bankruptcy code — is more than:
- $12,475, or
- 25 percent of their non-priority unsecured debt (i.e., credit card debt, medical debt, etc.) provided the amount is a minimum of $7,025.
If the would-be filer is unable to overcome this presumption of abuse, their Chapter 7 filing will be automatically converted to a Chapter 13 filing.
The forgoing discussion was by no means meant to confuse or even discourage would-be Chapter 7 filers. Rather, the purpose was to provide some background information on how the process works, and demonstrate how those considering Chapter 7 as an option should strongly consider speaking with a skilled legal professional who can outline the process and answer all of their questions.