In 2005 a new bankruptcy law was passed to make it harder for those who had run up unsecured debt to declare bankruptcy. The banking industry wanted to have those with higher incomes pay off some of the unsecured debt that these individuals were responsible for. The old law, they believed, seemed to encourage these individuals to just file in the court for a Chapter 7 or 13 bankruptcy and keep most of their assets, since many of the items purchased were older or even no longer in existence and the banks were netting very little return payment in the Chapter 7 liquidation process. This new law created what is known as The Means Test. In today’s world this test has become a starting point in the beginning of the bankruptcy process.
The Means Test takes the state’s median income and compares it to the income of the prospective bankruptcy filer. In simple terms the median income is the theoretical number that everyone’s income in the state of Florida is either more than or less than when compared to it. If the median income is higher it is sometimes enough to deny the opportunity for this person to file for bankruptcy. However there are some expenses that can be used to reduce the debtor’s disposable income.
These expenses include: taxes; involuntary deductions (union dues, 401k forced contributions); health disability and life insurance premiums; payments for secured debt (home and auto loans); court ordered payments such as child support, and also childcare and health care expenses. A list of all these expenses and what effect they have on a paycheck can greatly reduce the disposable income available to the person who wants to file for bankruptcy. Even if these expenses are still not enough to enable a filing for Chapter 7 bankruptcy, Chapter 13 might still be a feasible alternative in some cases.
Credit counseling also became a prerequisite thanks to the new law. Basically the counseling was merely a way to look at the amount owed and come to some kind of arrangement to pay it off. The good news was that many times late fees and accrued interest would no longer apply. In many ways similar to one of the things that are accomplished with a Chapter 13 reorganization of debt. These options still exist today and a person or family that is caught in a downward spiral of too much debt and not enough income needs to consider all their options to get control of their life back.
An experienced Attorney in Florida Bankruptcy law at The Badgley Group is more than just aware of the New Law’s history. Our experience with it and with helping people who are frustrated and feeling there is little or no hope to get out from under debts due to a medical emergency, divorce, job loss, or other financial hardship is invaluable. If you have been considering bankruptcy you should contact our office and set up an appointment to begin the process of getting your life back on track