Debtors with high incomes often mistakenly believe they are ineligible for bankruptcy protection. The eligibility to file depends on meeting the means test and the amount of debt owed, rather than income. So, even if you earn a significant income but are facing difficulty repaying a large amount of unsecured debt, bankruptcy may still be an option for you.
Chapter 7 Means Test
Chapter 7 bankruptcy is the most commonly used type of consumer bankruptcy. It is named so as it involves liquidation of non-exempt assets to repay creditors. However, due to generous exemptions, most filers are able to retain most of their assets. Upon receiving a debt discharge under Chapter 7, the filer is no longer liable to repay the discharged debts.
To be eligible for Chapter 7 bankruptcy in Florida, your income must be at or below the median income in your state. If it exceeds the median, you must pass the means test, which assesses if you have any disposable income after paying necessary expenses. Even if you have a high income, you can still qualify for Chapter 7 bankruptcy if your expenses leave you with no discretionary income. High-income filers must show good faith in their petition by demonstrating that their expenses are reasonable and necessary, not allowing for luxury items while claiming inability to repay creditors.
The means test considers your household to include yourself, any cohabitants sharing living expenses, such as a spouse or partner, and dependents residing with you. Roommates who pay rent or split rent are not included in the calculation.
The household income for the means test includes all income earned by anyone in the household, even if only one member is filing for bankruptcy. The monthly household income is calculated by summing up the gross income (before deductions) over the past 6 months. If your household income is below the median income for your household size in Florida, then you automatically qualify for Chapter 7 bankruptcy without facing a presumption of abuse.
If your household income exceeds the Florida median income for your household size, it does not prevent you from filing for Chapter 7 bankruptcy. You simply proceed with the remaining portion of the means test, which is referred to as the "means test" on official bankruptcy forms.
The current monthly income figure you calculated for the median income test is the starting point for the means test. The test determines how much of this figure is left each month, after deducting:
· Your secured debt payments, such as a car loan
· Your priority debt payments, such as back taxes or past-due child or spousal support payments
· Mandatory payroll deductions, such as current tax withholding, union dues, and required retirement contributions
· Ongoing court-ordered payments, such as alimony or child support
· Your actual monthly expenses for life insurance, health insurance, childcare, and education
· Reasonable housing expenses, based on local standards
· Ordinary transportation expenses, based on local standards
· Out-of-pocket healthcare expenses, based on national standards
· Other necessary household expenses, based on national standards
After these deductions, you may not have any monthly income left over. If you do, the test goes on to calculate how much you would have to pay each month if you filed bankruptcy under Chapter 13 instead of Chapter 7.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is another option for consumer bankruptcy filers. 13 requires a repayment plan over a three or five-year period. People who are unable to pass the means test for Chapter 7 bankruptcy may instead file for protection under Chapter 13. To qualify for Chapter 13, you must meet certain eligibility criteria, including being current on tax filings and having sufficient income to fulfill the repayment plan obligations. High-income earners generally have enough income to meet these requirements.
If you have questions whether you qualify for either Chapter 7 or Chapter 13 Bankruptcy and live in Pensacola, Milton, Pace, Gulf Breeze, Crestview, Fort Walton Beach, Niceville, Panama City Beach, or the surrounding areas, call (850)398 for a consultation with William T. Shaffer.
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