Bankruptcy cases fall 80 percent in Florida, but means test is "meaningless"

Reporter Harriet Johnson Brackey of the South Florida Sun-Sentinel reports that consumer fear of the new process has caused filings to drop by 80%, but that fear may be unfounded.

Lawyers say consumers fear the process will be more difficult, expensive and time-consuming than in the past -- all for the sake of getting less protection than before the law was changed. Those fears, bankruptcy experts say, are not all based on the truth.

Debtors must now pass an income test to be allowed to file for protection from creditors under Chapter 7 of the bankruptcy code, under which many debts are dismissed.

If their income is too high, most debtors now are forced to go through Chapter 13, which requires repayment of debts. This process can last five years.

As for the income test, that "has been meaningless," said bankruptcy Judge Jay A. Cristol, who presides in Florida's Southern District in Miami. The income test has applied to only one case he's handled all year, he said. For Florida, the median income is $36,796 for singles and $62,269 for a family of four.

Nationwide, too, only a "handful of cases" have hit the state median income limit, said Henry J. Sommer, editor-in-chief of LexisNexis Collier on Bankruptcy. "There never were a lot of people who could afford to pay their debts who were filing for Chapter 7."