Part 3 of 3: Which Bankruptcy Will You File?
Your personal financial history matters in bankruptcy. When you’re “deciding” what type of bankruptcy is right for you, it’s actually not your choice. Your income and a range of issues will decide for you. When you talk to a bankruptcy attorney, generally speaking, there are three types of bankruptcy that you’ll discuss:
- Chapter 7 bankruptcy for consumers
- Chapter 11 bankruptcy for businesses and high wealth individuals
- Chapter 13 bankruptcy for individuals who make more than Chapter 7 allows (according to the Florida Means Test.)
What is a Means Test?
A Means Test is not a test that you “take” or fill out a form to complete. A Means Test is a math problem that takes the amount of money you make (your means for repaying debt) also known as your “median income” in the state of Florida and compares it to your median income over the last six months.
If your income is below the median—the average–you “pass” and may file Chapter 7 bankruptcy. If your income is above that state average you’ll have to go to Part Two of the Means Test.
Part Two of the Means Test looks at the disposable income that you would have available to repay unsecured creditors over the next five years—as you would in a Chapter 13 bankruptcy. There are certain deductions for:
- Expenses
- Mortgage
- Vehicle payments
- Number of people living in the household
A bankruptcy attorney has to do the math because the formula is not one the average person will not be able to determine without knowing bankruptcy law.
Within the Means Test is the answer to your question as to whether you’ll file Chapter 7 bankruptcy or Chapter 13 bankruptcy.
If you’re a high wealth individual or married couple, a Chapter 11 bankruptcy may work for you. Again, a bankruptcy attorney will have to ask questions, you’ll provide answers and discuss what your financial goals are.
A Chapter 11 bankruptcy is usually filed by businesses but you may qualify. This is why talking with a bankruptcy attorney will immediately provide you with answers. Consultations are in-person, should last 15-20 minutes. After that time you should have an idea as to whether you’ll hire the attorney.
