Under the old bankruptcy law almost any resident of the United States could file Chapter 7 bankruptcy. However, under the new law, a formula test, called the means test, is used to determine eligibility to file Chapter 7 bankruptcy. The means test applies only to people whose debts are primarily consumer debts. Consumer debtors include credit card debts, car debt, or mortgages for the primary residence. Often people are forced into bankruptcy because of non-consumer debt such as a failed business, large judgment or delinquent mortgages on investment real estate. Those people whose debts are primarily business or investment debts are exempt from the means test and may file Chapter 7 bankruptcy regardless of their income and expenses.
Also, if your family income is less than the median income for households of similar size in your locality, you also are exempt from the means test. The Florida median income for a two-person household is approximately $50,000, approximately $40,000 for a single person.
The means test formula is designed to evaluate whether the debtor has the financial means to pay back a substantial part of his debts in a repayment plan through Chapter 13 bankruptcy. The formula focuses on the household income and allowable expenses. If, under the means test, you do not have the ability to repay your debts, you are eligible for Chapter 7, if not; you may be able to file under Chapter 13. The means test formula is complex incorporates a variety of government statistics from several sources as well as information about each debtor's financial situation. Calculations under the formula are difficult to do without a professional computer program designed for bankruptcy attorneys to prepare bankruptcy petitions. A debtor must also not have obtained a discharge in a Chapter 7 bankruptcy within 8 years of the filing date of a previous bankruptcy which a Chapter 7 discharge was received.
Chapter 7 bankruptcy discharges all debt and enables you to retain your exempt assets. Your retirement accounts (including your 401K and IRA) will not be affected by the bankruptcy filing. In addition, is often referred to as liquidation as a bankruptcy Trustee can sell all assets that are not exempt under state law to pay your creditors. The Trustee may not take your \exempt property, which you are able to retain regardless of its value and amount. Chapter 7 bankruptcy cases generally move quickly, and you may receive a discharge within a few months.
Dischargeable Debts.
A discharge will eliminate most unsecured debts, including:
- Credit Cards
- Signature Loans
- Medical Bills
- Most Court Judgments
- Gambling Debts
- Certain IRS Debts
- Deficiencies on repossessed vehicles
Debts which are non-dischargeable include:
- Child support, alimony, and property settlement obligations
- Debts incurred through fraud or embezzlement
- Most education / student loans
- Fines and penalties payable to the government
- Recent income tax liability
- Debts incurred for the recent purchase of luxury goods