Whether their  lay offs are permanent or temporary,  people are looking for ways to save money on goods and services that they need. With the advent of the Internet, people have become used to finding information and deals on items they need. The Internet Age has made  people used to getting things fast and cheap, or even free. It has also made people believe in do-it-yourself. Just watch a video and you can do anything yourself.  The recent lockdowns have had people searching for Youtube videos on how to cut their own hair, since most salons and barber shops have been closed.

Some people who are facing overwhelming debt also look for do-it-yourself solutions to deal with their debt. They often file for bankruptcy without an attorney. There are signs in Jacksonville along I-95 exits saying “Bankruptcy $150.” These signs are placed along the interstate by non-lawyers or “petition preparers” who will take $150 from you to type the documents necessary to file a bankruptcy case. The thought is that bankruptcy is just filing out some forms and filing them with a court.  (This author once had a boss, who is a lawyer. This lawyer  declared, “Bankruptcy isn’t rocket science; it is just filling out a bunch of forms about your finances.”  When this person filed for bankruptcy a few years later, she hired a competent lawyer.)

Americans who have become used to using credit cards as a stop-gap measure to survive pay-cuts might not be able to rely  on this method since nearly 50 million Americans just had their credit card limits cut.

For centuries, companies have used bankruptcy as a tool to survive, reorganize or to shut-down. Several airlines have filed bankruptcy over the past three decades, primarily to break contracts and modify pensions.

First, it is important to note that some expenses have predetermined amounts. Expenses such as food, utilities, housing and other necessary monthly expenses are predetermined by IRS local and national standards unless you have extenuating circumstances.

Expenses that can help you pass the MEANS test.

Court ordered payments such as alimony or child support.

Monthly mortgage and car loan payments. Instead of only being allowed the IRS standard for housing and car ownership, you can deduct your actual monthly mortgage payment and/or car payment. However, be weary as the amount allowed is the average amount due over the next 60 months. For example, your monthly car payment is $500 per month, and you have three years left on your car loan, which is only 36 months. Instead of being able to use the full $500 per month, you would only be able to deduct $300 per month on your MEANS test.

Involuntary employment expenses. If your employer requires you to pay such things as union dues, mandatory retirement contributions, etc. these amounts can be deducted from the MEANS test since they are not voluntary expenses and are necessary for your employment.

Child care expenses. Monthly expenses for day care, preschool or babysitting can all be used as a deduction.

Term Life Insurance. The actual monthly amount you pay for any Term Life Insurance policy can also be used as a deduction.

Expenses for a chronically ill, elderly or disabled family member.

Continuing charitable contributions. As long as you can show a long history of your recurring charitable contributions, they can be used on the MEANS test.

Educational expenses required for employment or a disabled child.

However, keep in mind that you must be prepared to show and prove these types of expenses and in some instances be able to show that there is a long history of such expenses. It is also imperative to note that many of the expenses listed above, are generally not huge monthly expenses but they might be just enough to help you pass the MEANS test if you are just over the median income required.

If you are thinking of filing bankruptcy because your debt is more than you can handle, a great place to start is determining whether or not you qualify for a Chapter 7 bankruptcy and whether you will have to take the MEANS test. Contact the Law Office of David M. Goldman, PLLC today for a free initial 30-minute consultation.

For a Chapter 7, your income must be below the median income level for your household size in your state. In order to figure out what your income is, the court looks at an average of your monthly income for the previous six months prior to filing. In Florida, as of April 1, 2017, the median income numbers are around the following and increase as your household size increases:

Household of 1: $44,576.00

Household of 2: $55,344.00

Household of 3: $60,636.00

If your median income is below these numbers for your household size, you only have to complete the “short-form means test.” This is because it is easy to determine that you qualify for a Chapter 7, because your income is clearly under the median.

If your median income is above these numbers, you will have to complete the second part of the MEANS Test. The second part of the MEANS Test, the “long form,” does a further determination/analysis of whether your income and expenses allow you to qualify for a Chapter 7. Things such as a mortgage or car payment can help you to lower your monthly income in hopes that it’s just enough to help you qualify for a Chapter 7 Bankruptcy.

What types of income are included in the MEANS Test? 

Now that you know how it is determined if you can file a Chapter 7 Bankruptcy, you probably would like to know what income is included in the MEANS Test. While ALL types of income must be listed on your Schedule I, which lists your monthly income in the future, NOT ALL types of income are included on your MEANS Test, but unfortunately, most are.

Income from regular employment, running a business, pension, retirement, etc. all must be included in your MEANS Test, even child support and alimony payments are included in your MEANS Test. The only income that is not included in your MEANS Test is disability income, such as Veteran Affairs Disability and Social Security Disability.

What this means is that even if your income is too high to qualify for a Chapter 7 Bankruptcy due to your social security or VA benefit, you might not have to include that income in your MEANS Test, because, without it, you might be able to qualify for a Chapter 7 Bankruptcy.

One of the first steps to filing bankruptcy is determining whether or not you pass the MEANS Test and qualify for a Chapter 7 Bankruptcy.

Contact the Law Office of David M. Goldman, PLLC today to evaluate whether or not you will pass the MEANS Test. Other factors such as any assets you might have also need to be taken into account when deciding whether bankruptcy is the best option for you.

How do I know if my income qualifies for a Chapter 7 Bankruptcy in Jacksonville, Florida?

You will have to pass something called the MEANS Test in order to qualify for a Chapter 7 Bankruptcy in Jacksonville, Florida. The MEANS Test is more or less a comparison between your income over the last six months and your household size.

The Median Family Income in Florida as of November 1, 2016 are:

• Family size of 1: $3,668 per month, or $44,021 per year;
• Family size of 2: $4,555 per month, or $54,655 per year;
• Family size of 3: $4,990 per month, or $49,881 per year;
• Family size of 4: $5,957 per month, or $71,480 per year;
• Family size of 5: $6,657 per month, or $79,880 per year;
• Family size of 6: $7,657 per month, or $88,280 per year,
• Family size of 7: $8,057 per month, or $96,680 per year.

For each additional family member you have, you can add $7,500 per year.

Therefore, if you are married and have two children, you are a household size of four. Since the median household income for a household of four in Florida is $5,957 per month or $71,480 per year, then you and your spouse would have to make $5,957 or less per month in order to qualify to file a Chapter 7 Bankruptcy in Jacksonville, Florida. If you and your spouse make more than $5,597 per month, then you will have to file a Chapter 13 Bankruptcy instead.

Luckily, with the example above, if you and your spouse make over $5,957 per month there might be a few exceptions the Means Test can offer which could help you qualify for a Chapter 7 Bankruptcy. This is where you would have to complete part (b) of the MEANS Test. Part (b) of the MEANS Test automatically gives you certain deductions that are set by the United States Bankruptcy Code and then defined per state for healthcare, medical expenses, charitable donation(s), school expenses, utilities, etc.

As an illustration, and in addition to the deductions you are given automatically, if you have a mortgage on your homestead residence, your monthly mortgage payment could be used as an exemption. Likewise, if your vehicle is financed, then your monthly car payment can also be used as an exemption to help you qualify for a Jacksonville Chapter 7 Bankruptcy.

If you are thinking about filing bankruptcy in the Jacksonville or surrounding areas and are concerned that you might not qualify for a Chapter 7 Bankruptcy, then it is always a good idea to first meet and get the advice of an experienced Jacksonville Bankruptcy Attorney. Not only can an attorney help you determine whether you qualify for a Chapter 7 Bankruptcy or not, but an experienced bankruptcy attorney can also help you determine whether bankruptcy is your best option and what assets you have that might be at risk.

If you’d like to discuss your particular situation with an experienced Jacksonville Bankruptcy Attorney, then contact the Law Office of David M. Goldman today for your free initial consultation.

Chapter 7

When filing a Chapter 7 bankruptcy, the Religious Liberty and Charitable Donation Clarification Act allows charitable donations or tithing as long as there is an established history of the donations or tithing, and the amount is not extremely unreasonable in relation to your monthly gross income. Additionally, charitable donations and tithing may even help you qualify for a Chapter 7. In order to qualify for a Chapter 7 bankruptcy, you must first pass the means test. The means test makes sure you do not have enough income for a Chapter 13 Payment Plan instead. However, the means test does allow you to deduct certain monthly expenses from your gross income. Regular charitable donations and tithing is one deduction that is permitted and could even help you qualify to file a Chapter 7 bankruptcy.

if your income exceeds the median family income then a presumption arises under part (a) of the Means Test that you do not “qualify” for a Chapter 7 bankruptcy.

The Means Test calculation compares your average monthly income (as calculated over the last six (6) months) to the median family income in your state for a household of your size. If your average monthly income is lower than the median family income for your state of residence and family size, then you meet the means test and there is a presumption that you will be permitted to file for Chapter 7 relief. There are even a few exceptions to the means test for military families and those whose businesses failed.

The Means Test was so terrifying and misunderstood that people rushed to file bankruptcy before it’s scheduled enactment. Some said it made filing Chapter 7 impossible.

Of course, as with all big changes in the news, not all rumors are completely accurate. What the Means Test does is look at the number of people in the debtor’s household, compare that number to the annually published IRS standards and see if the debtor makes less money than the average American in the area. If the person makes less money than average, they can file a Chapter 7. If they make more than the average, they have to file another chapter and make payments to their creditors. This is because they have the Means to do so, i.e. the Means Test.

Congress thought that by forcing higher income debtors to file Chapter 13, creditors would get paid some of what they’re owed and creditors deserve to get paid what the debtor is able to pay. Fortunately for the many residents of Jacksonville, Florida who have heavily invested in rental properties, Congress thought of them as well. When BAPCPA was drafted someone realized the chilling effect a means test would have on small businesses and other small investors. Since only Chapters 7 and 11 are available to corporations, most small businesses would have to be liquidated in Chapter 7 or would have to pay the enormous cost of filing a Chapter 11. Small investors would be forced to file Chapter 13, which would prevent them from doing business for the five year period it took to complete their payment plan. These are the reasons why Congress created an exception to the means test for those individuals whose consumer debts make up less than half of their debt, i.e. if more than half of your debts are business, you can file Chapter 7 without taking the means test at all.

During the housing boom many residents of Jacksonville purchased homes to rent in speculation that their value would keep increasing. Instead, the market tanked to the point where nearly half of all homes owe more money on their mortgages than the homes are worth. Many of these people have higher incomes than average and wouldn’t be permitted to file under Chapter 7 due to the means test but because these properties were purchased as investments, they should all be able to bypass the means test and file Chapter 7 automatically.

With few exceptions qualifying for a Chapter 7 requires you to demonstrate that your income is less than the average American for your family size. This is called the, “Means Test”. To calculate your income, the last six months of your income is added up and multiplied by two. This gives a quasi-accurate report of what your income will be going forward. If your raise occurs after you’ve filed your Chapter 7 and you qualified on the date of filing, you’re case probably won’t be effected by the raise. That being said, there is a forward looking aspect to the “Means Test” which requires you to declare any anticipated changes in your income. If you know the raise is coming, you need to report it.

In a Chapter 13 case a raise has a very different effect. A Chapter 13 is a reorganization of your debt. Generally, secured creditors get paid in full and unsecured creditors get paid what’s left, your disposable income, if anything of your paycheck after paying living expenses and secured creditors. When you get a raise, the amount of money going to your unsecured creditors can increase because you have more disposable income. So, if you have unsecured creditors in a Chapter 13 who aren’t getting paid in full, you won’t see any money from your raise until your case is over because that increase in pay will go to the unsecured creditors. However, if your unsecured creditors are getting paid all of the money they’re owed, then an increase in income means that you’ll be able to pay everyone off sooner. Once everyone is paid in full, your case can be closed and you can get on with your life.