The Four Steps in the Chapter 7 Bankruptcy Means Test

People who file for Chapter 7 bankruptcy have to pass what’s called a “Chapter 7 Means Test” it’s a rather odd name isn’t it? It isn’t about whether your nice or mean and it really isn’t an examine or test like you have in school. However there are four steps to determine whether or not you meet the Chapter 7 Means Test.

1.The first step is compare your income to the medium income in Florida for a family the same size as yours. The state medium income for Florida is: single earner $41,226, two person $52,259, three person: $58,574, four person: $69,009. If your income is higher than the medium income it doesn’t mean that you can’t file for Chapter 7, you just move on the to the second step in the test.

2.Calculating your disposable income and unsecure debt. This second step is, quite frankly, complicated and this is where the Sunshine State Bankruptcy Law Firm can help determine whether or not you meet the second step.

Under the bankruptcy code there are certain allowable expenses which will be subtracted from what’s call the disposable income. Isn’t this rather confusing? So let me give you an example. If your projected disposable income over the next five years is less than $100 per month or $6,000, you will “pass” and you can file for Chapter 7. However, if your disposable income is greater than $10,000 over the next five years, it’s presumed that you really don’t need the Chapter 7 bankruptcy. You can only file Chapter 7 if you can demonstrate special circumstances.

What if you fall in that range between $6,000 to $10,000 of disposable income over the next five years? This calculation requires some more math. Your disposable income over the next five years is compared to a percentage of your unsecure debt to determine whether there is going any significant repayment to your creditors. The only way to do this math is percentages.

If your disposable income for the next five years is more than 25% of your unsecure debt, you will probably be under the same circumstances as if you had more than $10,000 in disposable income.

If your disposable income over a five year period is less that 25% of your unsecured non-priority debts, you will likely pass the means test.

All rhis requires calculations about your income to determine whether your debts are classified at unsecure and priority. So you can see why you need to the services of an experienced financial expert to determine whether or not you meet the Chapter 7 Means Tests.

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