When seeking bankruptcy protection in Florida, anyone considering filing for Chapter 7 must pass a bankruptcy means test. This test ensures that only the financially insolvent are granted a discharge under Chapter 7, all others may seek help under Chapter 13. However, an important decision was handed down by a judge that could have significant impact on Florida bankruptcy filings.
Changing The Rules
A Florida bankruptcy judge sided with federal courts on a decision about Chapter 7 conversion cases this week. The rules state that debtors who fail the means test are not eligible for Chapter 7 bankruptcy. However, this rule may no longer apply to debtors who originally file for Chapter 13, but convert their case later into a Chapter 7.
The debate among court officials is that the rule was intended to apply to anyone granted a Chapter 7 bankruptcy discharge, whereas others say that conversion cases do not need to meet this standard. Only a handful of people hold the latter view, which is one that may now become the law.
The reason for the rule revision came from a case in which a woman was laid off from her job after entering Chapter 13 that put her homestead at risk of liquidation and threatened her ability to maintain her Chapter 13 plan. Rather than have her case dismissed she converted to a Chapter 7 case, which then became threatened upon employment.
The decision was meant to accommodate “exception to the rule” cases, in which circumstances change. However, the concern is that changing the rules to allow Chapter 7 conversions to be exempt from the means test criteria could spark abuse of the system.