Florida Chapter 7 Bankruptcy Income Limits

Chapter 7 bankruptcy can be an excellent debt-relief option that gives debtors a fresh start in a matter of months. Not everyone is eligible to file under Chapter 7, though. To qualify for Chapter 7 relief, you must complete the bankruptcy means test. This test is designed to prevent people who can afford to pay their debts from abusing the bankruptcy laws. This article covers how Chapter 7 means testing works in Florida, what’s required to “pass” the test, and the exceptions that apply in the Sunshine State.

Qualifying for Chapter 7 Bankruptcy

Before October 17, 2005, anyone could file Chapter 7 bankruptcy, regardless of their income — and file they did. ^[0] There was growing concern that people were abusing Chapter 7 by filing bankruptcy even though they could afford to pay their bills. 

Banks and credit card companies lobbied Congress to make changes to the bankruptcy rules. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Under the new law, only people who lack the “means” to pay their debts qualify for Chapter 7 relief. 

Even with these changes, most Floridians who want to file Chapter 7 bankruptcy can still do so. If your household income is lower than the median income for similar Florida households, you’ll only need to complete a statement showing your current income. If your income is higher, you’ll need to complete the full means test, which takes your debts and living expenses into account. Both steps are covered in more detail below.

Median Income Test

If you listed the income of every Florida household of a certain size in order from the lowest income to the highest income, the number in the very middle of the list would be the median income. Bankruptcy courts use median income figures calculated by the U.S. Department of Justice (DOJ), which are based on the most recent data from the U.S. Census Bureau. These figures are usually updated every six months.

For the median income test, you’ll calculate your household’s gross income, then compare it to the current median income for other Florida households of the same size. If your household income is less than the median, you automatically qualify for Chapter 7 bankruptcy. You don’t have to complete the full means test.

How To Calculate Income and Household Size

For the means test, your household includes you and everyone who lives with you and shares the same living expenses. This includes your spouse or partner, even if you’re not married. It also includes any dependents who live with you. But it doesn’t include roommates who are paying you rent or sharing the rent. As a rule of thumb, anyone who could be listed on your tax return is usually part of your household.

Your household income includes all income earned by anyone in your household, even if you’re the only one filing bankruptcy. To calculate your monthly income for the means test, add together all gross income (before any deductions) received during the past six complete months. 

• Don’t include the current month. For example, if you’re filing bankruptcy in October, you would only count income received in April, May, June, July, August, and September.

• Include alimony, child support, and retirement income, but don’t include Social Security payments or Veterans Affairs (VA) disability payments.

Add up all your household’s gross income for the last six full months, then divide that number by six. The result is called your current monthly income (sometimes called your average monthly income). Multiply your current monthly income by 12 to find your current annual income. You must calculate both the monthly and annual figures to complete the first part of the means test, but the annual figure is what you’ll compare to the state median income table (see below). 

If your household income is lower than the Florida median income for your household size, then there’s no presumption of abuse in your case. In other words, you automatically qualify to file Chapter 7 bankruptcy. 

Florida Median Income Levels

Chapter 7 Means Test

If your household income is higher than the Florida median income for your household size, that doesn’t mean you can’t file for Chapter 7 bankruptcy. It just means that you must continue with the rest of the means test. (Note: Only this second part is called the means test on the official bankruptcy forms.)

The current monthly income figure you calculated for the median income test is the starting point for the means test. The test determines how much of this figure is left each month, after deducting:

• Your secured debt payments, such as a car loan

• Your priority debt payments, such as back taxes or past-due child or spousal support payments

• Mandatory payroll deductions, such as current tax withholding, union dues, and required retirement contributions

• Ongoing court-ordered payments, such as alimony or child support

• Your actual monthly expenses for life insurance, health insurance, childcare, and education

• Reasonable housing and utility expenses, based on local standards

• Ordinary transportation expenses, based on local standards

• Out-of-pocket healthcare expenses, based on national standards

• Other necessary household expenses, based on national standards

After these deductions, you may not have any monthly income left over. If you do, the test goes on to calculate how much you would have to pay each month if you filed bankruptcy under Chapter 13 instead of Chapter 7. This calculation includes your estimated Chapter 13 plan payment plus any estimated administrative expenses and trustee fees related to Chapter 13. If you have enough disposable income left to pay back at least 25% of your unsecured debts through a Chapter 13 repayment plan, you aren’t eligible for Chapter 7. The court will likely convert your case to a Chapter 13 bankruptcy case. 

Florida's Business Debt Exception

There’s an important exception to the general means testing rules. The median income test and means test are only required for filers whose debts are primarily consumer debts. If your debts are primarily business debts, you can file Chapter 7 bankruptcy regardless of your income. To fall within this exception, more than 50% of the total amount of your debt must be classified as business debt. 

According to the Bankruptcy Code, a debt is a consumer debt if it was incurred for a “personal, family, or household purpose.” The code doesn’t define non-consumer debt, but bankruptcy courts generally rule that if a debt isn’t consumer debt if it was incurred for a business purpose or was intended to help generate a profit. 

If you take advantage of Florida’s business debt exception, though, keep in mind that the Chapter 7 trustee and/or the U.S. Trustee’s office (a division of the DOJ) may scrutinize the details of your case more closely. This is especially true if your income is too high to otherwise qualify for Chapter 7 or if some of your debts could be considered as having both personal and business purposes (for example, the mortgage on your home for a home-based business). 

Let's Summarize...

Chapter 7 debt relief is only meant to be used by people who can’t afford to pay any meaningful portion of their unsecured debts. Taking advantage of the Chapter 7 discharge when you have the ability to pay your creditors is considered an abuse of the bankruptcy system. The means testing forms were designed to prevent this.

You’re automatically eligible for Chapter 7 if your household income is less than Florida’s median income for your household size. If your household income is higher than the median, then the means test calculations must show that your expenses are high enough that you can’t afford to pay the debts you’re trying to eliminate. If you’re concerned that you might not qualify for Chapter 7 based on the means test calculation, it’s a good idea to meet with an experienced Florida bankruptcy attorney to review your options.