Chapter 7

Bankruptcy protections under Chapter 7 allow for the discharge or cancelation of most or all of your debt in return for the trustee’s liquidation of non-exempt assets.  In Florida, exempt assets include your:

Homestead – Your homestead, defined as real or personal property, including mobile or modular home and condominium, not exceeding 1/2 acre in a municipality or 160 acres elsewhere is protected from Chapter 7 liquidation to unlimited value.

Personal Property – Prepaid hurricane savings accounts, prepaid medical savings account deposits, and prepaid college education trust deposits are exempt from liquidation by the trustee. A motor vehicle up to $1,000 ($2,000 if owned jointly by spouses), prescribed health aids, federal income tax credits or refunds, and pre-need funeral contract deposits are also exempt.  There is also a credit for any personal property up to $1,000 of its fair market value which may be doubled if you are filing jointly with your spouse.  If you cannot claim the Florida homestead exemptions, Florida law allows for a $4,000 compensatory exemption that may be doubled if filing jointly with your spouse.

Wages – The head of household may claim 100% of earnings up to $500 a week as exempt, which applies to either unpaid or paid wages, or wages deposited in a bank account for up to 6 months.  If you are a Federal government employee your pension payments that are needed for support and were received up to 3 months prior to the bankruptcy are exempt.

Pensions – Tax exempt retirement accounts, traditional IRAs and Roth IRAs up to $1,095,000 per person and pensions of state officers and employees, county officers and employees, teacher, firefighters and police officers are also exempt.  ERISA – qualified benefits, IRAs and Roth IRAs are likewise beyond the reach of the bankruptcy trustee.

Public Benefits – Public assistance, unemployment compensation, Veterans’ benefits, and social security benefits are also exempt from seizure as are settlements or payments received from workers’ compensation claims.  Compensation received by crime victims’ is exempt from liquidation unless you are seeking to discharge a debt for treatment of the crime related injury.

Alimony and Child Support – Alimony and child support needed for support are also exempt from discharge.

Insurance – Death benefits payable to a specific beneficiary, annuity contract proceeds excluding lottery winnings, life insurance cash surrender value, disability or illness benefits and fraternal benefit society benefits are beyond the reach of the trustee.  Damages to employees for injuries incurred in hazardous occupations are also beyond the reach of the trustee.


Qualifying for Chapter 7: (THE MEANS TEST)

To qualify for Chapter 7 relief under the U.S. bankruptcy code you must pass what is known as the “Means Test.”  This test determines whether or not you or your family has sufficient disposable income to repay your creditors.  If it is determined that you do, you cannot file Chapter 7 and must consider a repayment plan under Chapter 13.

The Means Test first determines whether or not your income is greater than the medium income for a family of your size in the state in which you live.  The medium incomes for Florida as of October 1, 2011 are $40,029 for a single earner, $50,130 for two persons, $54,594 for three persons and $65,135 for four persons.  If your income is less than the medium incomes noted above you are eligible for Chapter 7 relief.  If not, you must move to the second phase of the Means Test.

If your income is greater than the medium income of your state for a family of your size and you want to file for Chapter 7 bankruptcy relief, the second part of the Means Test must be performed.  In this part your allowable expenses (as defined by the IRS) are subtracted from your total income to determine your “disposable income.”  If your disposable income over the next 5 years will be less than $6,000 (or $100/month), you “pass” the means test and can file Chapter 7.  If your disposable income over the next 5 years is more than $10,000 (or $166/month) you will “fail” the means test and must demonstrate a special need to file for Chapter 7 relief.  Having disposable income between $6,000 and $10,000 over the next 5 years puts you in a grey area requiring one more calculation.

Having disposable income between $100 and $166 per month requires you to compare your disposable income over the next 5 years to the amount of your unsecured and non-priority debts.  If your disposable income is greater than 25% of your unsecured debts you will fail the means test and must demonstrate special circumstances to file for Chapter 7 relief.  If your disposable income is less than 25% of your unsecured debts you “pass” and can file Chapter 7. Please remember that failing the means test does not mean you are unable to avail yourself of certain bankruptcy protections.  If you fail the means test, you will still likely qualify for Chapter 13 bankruptcy protections.

Let Matthew Bothwell, P.A. help you through the bankruptcy process.  Contact us today at (904) 351-6640 or [email protected].