Nobody ever plans to be overwhelmed by debt. It starts with purchasing a big ticket item like a house or a new vehicle. You did the math and knew you could make the monthly payments.
But Murphy’s Law says, “Anything that can go wrong will go wrong,” and you suddenly have unexpected expenses. You try to cover those with your credit card, but eventually, that gets maxed out. Suddenly, your house of cards collapses, and you’re unsure where to turn.
The means test
The two common forms of bankruptcy for most people are Chapter 7 and Chapter 13. They each have different criteria, but they have the same goal of getting you out of debt.
Chapter 7 is often called the “liquidation bankruptcy” and is meant for people with limited income. It helps you eliminate most of your unsecured debt, such as personal loans, credit cards and medical bills. However, you will still be responsible for student loans, child support and tax obligations.
To be eligible for Chapter 7, you first need to pass a means test that compares your income against Florida’s median income, which currently ranges from $65,801 for 1 earner to $107,712 for a family of four. You may not be eligible for Chapter 7 if your income is above the median.
If you do qualify for Chapter 7, your non-exempt assets may be sold to repay your creditors. Some assets are typically exempt, such as your primary residence, a car of minimal value, tools of your trade, some clothing and retirement funds. The whole process usually only takes about 4-6 months.
If you have a steady income, Chapter 13 may be a better option for you. It allows you to reorganize and repay your debt over 3-5 years under a court-approved plan, as long as your combined secured and unsecured debt isn’t more than $2.75 million. Chapter 13 doesn’t require you to sell your non-exempt assets to satisfy your creditors.
Before moving forward with bankruptcy proceedings, you will want to discuss your situation with someone who can review your circumstances. They can help you decide which option is best for you and guide you through the process.