Like many in Hernando County, you may want to try and avoid having to file for bankruptcy at all costs. Yet in certain situations, seeking such protection might give you the best chance to rebound from whatever financial hardships have placed you in this precarious position. The question then becomes which bankruptcy case is best for you: Chapter 7 or Chapter 13? 

A Chapter 7 bankruptcy allows certain debts to be discharged, while a Chapter 13 case requires you to still repay them through a repayment plan. That fact may have you thinking that you would a prefer to file under Chapter 7. However, your eligibility to do so must first be determined through the Chapter 7 means test. 

Applying the means test to your case requires that you first know your current monthly income. This includes money you have coming in from a variety of sources, including: 

  • Salary and wages
  • Rental property income
  • Child or spousal support
  • Disability or unemployment benefits 
  • Pensions and retirement accounts
  • Royalties, interest, dividends and annuity payments

The first step of the Chapter 7 means test is simple: If your current monthly income is less than the state median for your demographic, then you qualify. 

If your income exceeds the state median, then the second step of the means test is applied to your case. Certain deductions are taken from your income to come up with your disposable income. That figure is projected out over the next five years. If that figure exceeds two predetermined values ($12,850 or 25 percent of your nonpriority unsecured debt, according to the website for the United States Courts), you do not qualify. 

Should you fail the means test, personal bankruptcy may still be an option for you. You simply would need to file under Chapter 13.