What is the “means test”?

On behalf of Bankruptcy Law Firm of Clare Casas on Wednesday, July 1, 2015.

When an individual in Florida files for bankruptcy, they must meet certain standards to qualify for chapter 7. This is because chapter 7 bankruptcy completely eliminates many debts, as opposed to restructuring the payment plan — which is essentially what chapter 13 bankruptcy does. Your family’s monthly income, plus your expenses, is taken into consideration in what’s called the means test.

The first part of the means test is determining your income compared to the state median income. For a Florida family of two, the median is about $51,500. If your income is lower, you automatically qualify for chapter 7. If you bring in more than that, the means test will decide if you qualify for liquidation.

Next, there are specific spending factors that are taken into account. Some of these categories are based on the national average spent, not the actual spending habits of the family. These include food, clothing, housekeeping supplies, personal care and hygiene products, out-of-pocket healthcare and a miscellaneous catch-all. Your bankruptcy attorney can give you more detail on each category.

Next are localized factors, sometimes broken down by state or county. These include housing and transportation. Your housing costs include rent/mortgage, utilities, taxes, insurance, repairs, telephone, internet and cable. Transportation is a combination of national and local standards. It factors in national loan or lease rates, but then looks at localized maintenance, fuel, insurance and other costs.

After all factors are considered, if the courts see that your income can cover your debts after all other expenses are covered, you will likely be denied chapter 7 liquidation bankruptcy. Your best option when trying to declare bankruptcy may be to hire an experienced attorney. They can help you determine what bankruptcy you qualify for.