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Florida Bankruptcy Income Limits

Chart of new median income figures for Florida as of November 15, 2013

Exact amounts, by household size:

[1] 41,334 [2] 51,839 [3] 53,952 [4] 65,260 [5] 71,296 [6] 79,396

What does it all mean? The short version.

If your household income is below median income you can probably file a Chapter 7. Don't count the current month, but examine the 6 preceding months and add up the gross income for your household (even if only one person is filing bankruptcy). Multiply that 6-month total by 2 to make an annual figure. Compare that annual figure to the median income chart above for your household size. If you are below median income you probably can file Chapter 7. If you are above median income, then you can move on to the next way of qualifying for Chapter 7, called the "Means Test." If you pass the "Means Test" you can still probably file a Chapter 7; otherwise you will likely be looking at Chapter 13.

Super Loophole: If you have more business debt (debt that was incurred with a profit motive) than consumer debt, you get a pass and don't even have to qualify under this test; you automatically qualify to file Chapter 7.


What does it all mean? The in-depth version.

Consider the history of median income

Most people who file bankruptcy would prefer to file a Chapter 7. There's a lot to like about Chapter 7. There is no requirement to repay your debts. The case is effectively over in less than four months. Chapter 7 can wipe out most common debts (other than student loans) unless it's a debt you choose to keep like the mortgage on your home). Chapter 13 has its own advantages, but Chapter 13 is more of a boutique bankruptcy, and people voluntarily choose it over Chapter 7 for only a few, select reasons. Unlike Chapter 7, Chapter 13 can stop a foreclosure and let you get caught up on the missing payments. Chapter 13 can allow you to keep some especially important items of property that you might lose in a Chapter 7. And while Chapter 13 is usually much better than not filing bankruptcy at all, for most people Chapter 7 would be even better.

Creditors, on the other hand, would prefer debtors file a Chapter 13 and (make an attempt at repayment) rather than a Chapter 7 where creditors are less likely to receive anything. Under the old law, if a bankruptcy debtor had sufficient income to make significant debt repayment, the Chapter 7 trustee could ask the Court to (or the bankruptcy judge could himself) change the Chapter 7 case into a Chapter 13 case and so force the debtor to pay back at least some portion of the debts. Creditors, however, were not permitted to make this request (probably from the fear they would ask for it in every case). However, trustees did not make these requests often and the bankruptcy judges didn't have a great deal of guidance from the law in how to decide these issues, so results varied from court to court and state to state. Creditors were unhappy seeing what they thought were debtors who might be able to make repayments in Chapter 13 being allowed to file Chapter 7 and skip repayments on their debts.

Consumer Protection, Indeed

Credit card companies having the money to buy off enough Senators and Congressmen (apparently cheaper by the dozen), in 2005 we were presented with changes in the law designed to force more people out of Chapter 7 and into a Chapter 13, thereby turning the bankruptcy courts, effectively, into collection agencies. And of course, like the infamous "Patriot Act" that took away our rights of privacy (what ARE you reading at the library, anyway?), the new bankruptcy law was cynically given the name the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," a cruel joke indeed, a law often referred to by its acronym "BAPCPA" (pronounced "Bap-see-puh"). In passing BAPCPA, Congress imposed more uniform income limits on people wanting to file Chapter 7. The permissible income levels born of BAPCPA brought us face to face with the concept of "median income."

Median Income

BAPCPA, the current law, says that the bankruptcy courts shall look to the "median income" for the state in which court has jurisdiction. The median income figures come from the Census Bureau. If you remember your math, the "median" income for a state is not the same as the "average" income (the "mean" income.) The "median" income is the income you find if you make a list of all the incomes for the state in a vertical column and you pick the one half way up, in the dead center. Also, the new law instructs us to look at the "household" median income. As a result, we are looking at the total income for everyone in the household combined, no matter who is filing the case. We do have different median incomes for different size households. This lists of incomes are different for every state and they are updated usually twice per year. Also keep in mind; the figures are for gross income, not take-home pay. Gross income is measured before taxes are deducted.

Making the Calculation

You start with the gross household income for the previous 6 completed months. You never count the month you are in because it is not complete. So, if you are filing in March of a given year, you add up the gross income for the months of September of the previous year through the end of February. That gives you 6 months income. Now double it. That gives you an annual, 12-month income, but it is based upon your rate of income for the most recent 6 completed months. That is the number you compare to the Florida Median Income Chart for your household size. Your household income is either below that median or it is not.

If You Are Below Median Income, You Qualify for Chapter 7, Right?

Well, probably. What the law really says is that if you are below median income, then there is no "presumption of abuse" of the Chapter 7 provisions. There could still be abuse, but it is not "presumed." What is a presumption? Think of it this way: normally you are innocent until proven guilty. If there is a presumption, then you are guilty until proven innocent. Not satisfied with that explanation? In legal terminology, the existence of a presumption alters the burden of going forward with evidence on the issue to which the presumption applies and demands a rebuttal. A complete failure to rebut the presumption by presenting additional evidence results in the judge deciding on the issue against the party responsible for the rebuttal. Sometimes it is stated that a presumption changes the burden of proof, but that is incorrect. The ultimate burden of proof remains the same and it continues to rest on the party charged with that burden. The presumption once met by its proponent only changes the burden of going forward with the evidence, but once presented the proponent need not provide further any further evidence unless the other party rebuts the presumption. Successful rebuttal causes the presumption to disappear from the case.

Put another way, if you are over median income then there is a presumption of abuse. So, just because you are below median income doesn't really mean you get a Chapter 7 admission ticket. It just means there is no presumption against you. But all this is just a technical reading. On the street, as it were, if you are below median income you are unlikely to be hassled by the U.S. Trustee's office, which seems to be in charge of asking the court to move you from a Chapter 7 to a Chapter 13. Creditors can make this charge as well, but rarely do.

Means Test

What if you are over median income? Well, you know being over median income produces a presumption of abuse of the Chapter 7 process, and you could get locked out of Chapter 7 and be looking at a Chapter 13. But it's only a presumption and you might be able to rebut the presumption by passing what is called the Means Test. The Means Test is designed to calculate how much money can be squeezed from the Golden Goose without actually killing it. You are the Golden Goose. How much can you pay each month without collapsing, that is the question. We know what your income is because we already calculated it when we tested it against Median Income. Now we turn our attention to your expenses.

Unfortunately for consumers trying to pass the means test, Congress chose to use a model of monthly living expenses originally developed by IRS to extract money from people who refused to pay their taxes. You could say that BAPCPA raised "debts owed to credit card companies" (who charge astronomical rates of interest) to the same level of dignity as tax debts in deciding how much of your income you should be allowed to use for expenses to get you through the month. Side note: Congress didn't lose its mind entirely, however. When it comes to distributing money to creditors in a bankruptcy, Congress made sure the Internal Revenue Service gets paid in full before credit card companies receive a dime.

In any event, to do the means test, we set up a hypothetical budget for you. We know there must be allowances for your taxes and insurance that will be taken out of your gross paycheck. The Court then makes allowances for food and clothing (not your numbers, IRS's numbers). The court makes allowances for car payments, health and auto insurance, burglar alarms systems, Internet, mortgage or rent, and a host of other necessary expenses. Some expenses numbers come from your actual life, like medical expenses and mortgage payments, and you can receive an allowance for your own medical co-pays without dollar limit so long as you can back it up with proof. There is even an allowance for charitable contributions within reasonable amounts, if this is something that you have already been doing. There is an allowance for "Personal Care, Housekeeping Supplies, and Miscellaneous." But at the end of the day, the Court fixes your necessary monthly expenses, i.e., how much you really NEED from your income to survive. You aren't given an allowance for vacations or for savings. No more contributions to IRAs or 401(k) s. Just enough money to live on. Now, here comes the big calculation: the Court then subtracts these necessary monthly expenses from your income to see if there is a significant amount of money left over each month you could pay to creditors. If "No" you can file a Chapter 7. If "Yes" then you will not be allowed to file a Chapter 7 and only a Chapter 13 will be available to you. In the Chapter 13 you must pay this left over money to your creditors for five years.

As we said, sometimes these Means Test calculations show there is no significant money left over for creditors. In that case our client has successfully rebutted the presumption of abuse -- translation, the client can file Chapter 7 even though the client's household income is above Median Income. In our office, if clients who fail the Median Income test (income above the limits at the top of this page) wish to find out whether they can pass the Means Test, we will charge them for this work (it's a bit involved, takes some time, and is rather like doing an income tax return). After getting the results, if the client wishes to file bankruptcy, we give them a credit for the fees paid in doing the Means Test.

The Business Debt Exception

There is a wonderful loophole to all this inquiry into your income. If your debt is primarily "business" debt (as opposed to "consumer" debt) then you are allowed to file Chapter 7 case without regard to your current level of income. Debts are classified as "business" debt if they were originally incurred for a profit making purpose. If you buy a house to live in, and then move to another home later, you might decide to rent out the first house. Even though you have tenants in the first house, and have income and expenses from the arrangement and may even making a profit, the mortgage on the first house is not classified as a business expense because the original purpose in buying the house was for your personal use. However, if you take a second mortgage out on your home (even if you are living in it) and the proceeds are used to buy a franchise for your new business, that second mortgage is a business debt, notwithstanding it is a mortgage on your personal home. The motivation for the loan is what counts. So, if you think you qualify for the business debt exception, then go through all your debts and classify them as business, consumer, or part business/part consumer (a percentage). Add them all up and see if more than half your debt is business debt. This exception is in place because of the public policy of encouraging people to start up businesses. In effect it offers a safety net and says, "The nation encourages everyone to start up a business. We recognize that most (80% by some estimates) new businesses do not succeed. Most tadpoles do not grow up to be frogs. Rest assured that if your business fails, you will be able to file a Chapter 7 and we will not deny you this opportunity regardless of whether you have found a high paying job or not." Translation: the government is crossing its fingers hoping you will start a new Apple computer company in your garage and eventually create lots of jobs. If your effort fails, and odds are it will, you can file a Chapter 7 even if you land a new high paying job after your business failure.

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