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The means test in bankruptcy

Hard economic times force many Florida residents to consider the option of filing for personal bankruptcy. Debt relief and the promise to stop creditor harassment are only two of major incentives behind those trying to determine their eligibility to file under Chapter 7 or Chapter 13. As well as differences in length of time and management of debt, the choice may come down to a means test applied by the courts.

Under Chapter 7, non-exempt assets of a debtor are liquidated, with the proceeds going to pay off creditors. Most remaining unsecured indebtedness is then discharged, and the process can take as little as a few months.

To receive the benefits of debt discharge, a Florida applicant must pass the means test. In general, this means the person must have an income lower than the median for the state. However, courts have leeway to bend the rules of the means test in certain situations.

Under Chapter 13, a debtor proposes a repayment plan lasting from between three to five years. The plan must be approved by the court. One advantage of this chapter is that it can allow homeowners to catch up on any past due mortgage payments over the life of the plan, thus avoiding foreclosure. However, it it designed for people who have a regular source of income. Under both chapters, the filing of a petition will put at least a temporary hold on creditor harassment and collection efforts. An lawyer who has experience in this area of the law can analyze a client’s situation to see whether filing would be an appropriate method of debt relief.

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