Filing Chapter 7 Bankruptcy
If you have reached the end of your financial rope and need a way out of debt, filing a Chapter 7 Bankruptcy and discharging all of your debt may be the solution that gives you the fresh start you need to get back on track. Although it is the most popular and most commonly-filed Chapter of bankruptcy, not everyone who wishes to discharge their debts in a bankruptcy can proceed under Chapter 7. There is a process by which we can determine if you qualify for a Chapter 7 Bankruptcy filing.
The Income Analysis and The Means Test
The first step our firm takes in determining whether a debtor is eligible for filing under Chapter 7 of the Bankruptcy Code is to analyze the household income of the debtor or debtors. If a debtor is single, only the income of the debtor will be analyzed. If a debtor is married, the household income of the couple must be analyzed, even if only one spouse intends to file bankruptcy.
The household income of the debtor or debtors is compared to the median income for a household of like size (a single filer, a household of two, etc.) in Florida. We are required to examine the six months immediately preceding the Chapter 7 Bankruptcy filing, average the monthly income, and annualize it. If the annualized household income of the debtor or debtors is less than the median income of a same-sized household in Florida, then the debtor or debtors fall below the threshold requiring an income analysis known as the Means Test. These debtors automatically "pass" the Means Test without even being subjected to it!
If the annualized household income of the debtor exceeds the median annual income in Florida for a household of the same size, the debtor will be subjected to the Means Test. We must determine if the debtor or debtors have the means (or ability) to pay back any of their unsecured debt. A Means Test analysis involves the calculation of a debtor's monthly expenses in certain categories and deducting these expenses from the debtor's household income. The Means Test does not allow all actual expenses a debtor may have to be deducted from the debtor's monthly income, as some expenses are not seen as reasonable expenses under the Means Test. To make the analysis even more difficult, even if the expenses are considered reasonable under the Means Test, the test does not always allow the actual amount of the reasonable expense to be utilized in the calculation. In those cases, there are standard IRS expense allowances that are applied instead.
In certain circumstances, a deeper income analysis may be required even if a debtor passes the Means Test, due to the fact that the Means Test only analyzes certain types of income. However, if the Means Test reveals that a debtor has little or no disposable income, then it is likely that the debtor's income qualifies for a Chapter 7 bankruptcy in most cases.
The Asset Analysis
If a debtor's household income is below the state median income or they have passed the Means Test, the next step our firm takes in determining whether a debtor is eligible for filing a Chapter 7 Bankruptcy is to conduct an analysis of all of the debtor's assets and determine whether Florida's Bankruptcy Exemptions can protect some or all of the debtor's assets. Chapter 7 Bankruptcy is historically known as a "liquidation" bankruptcy because the Bankruptcy Trustee assigned to your case has the ability to seize non-exempt assets of the debtor and liquidate or sell them, using the proceeds from the liquidation to pay the creditors some or all of what they are owed. In actual practice however, a great many of our clients filing under Chapter 7 do not have any risk of their assets being seized by the Trustee and sold to pay the creditors, but the Trustees can and will aggressively pursue non-exempt assets, so it is vital for a debtor to enter into a Chapter 7 Bankruptcy knowing exactly what to expect. If a debtor wishes to retain certain assets that are non-exempt but does not have the immediate ability to pay the trustee the value of that asset, the debtor must decide between surrendering the asset to the trustee or paying the value of the asset over time in a Chapter 13 Bankruptcy.
Bankruptcy laws can be complex. Filing for bankruptcy is an enormous decision and the process can have many traps for the unwary. It is crucial to have competent, compassionate attorneys by your side to guide you along this path to financial freedom. Call our office today or fill out our online contact form. We offer a free consultation, evening and weekend appointments, and most importantly, the personalized attention that you and your case deserve.