Changes Affecting Bankruptcy

Navigating the complexities of bankruptcy can be challenging, especially when laws and regulations change. Recent changes to the vehicle exemption limits and the income thresholds for the means test affect those individuals filing for bankruptcy relief.

Increase in Vehicle Exemption

In bankruptcy proceedings, exemptions are crucial as they determine what property you can keep. The vehicle exemption specifically allows debtors to retain a portion of their vehicle’s equity rather than having it sold off to pay creditors. Equity is the difference between what you owe on the car and its current market value. Effective July 1, 2024, Florida has increased the vehicle exemption limit. Previously, the exemption was $1,000, meaning that if your car’s equity was $1,000 or less, you could keep it. The new legislation raises this limit to $5,000. This change is significant for several reasons:

Broader Protection: More debtors will now be able to retain their vehicles, which is essential for maintaining employment, fulfilling family obligations, and other daily activities.
Higher Equity Vehicles: Individuals with slightly higher equity in their vehicles will benefit from this change. For example, if your vehicle’s equity is $5,000 or less, you can keep it under the new exemption rules.
Reduced Financial Strain: Losing a vehicle can be a major setback, especially during financial hardship. The increased exemption provides better protection against this potential loss.

Practical Example: Consider Jane, who owns a car valued at $8,000 with an outstanding loan of $3,500. Under the old law, her equity is $4,500, exceeding the $1,000 exemption, which might result in her having to sell the car. Under the new law, her $4,500 equity falls within the $5,000 exemption limit, allowing her to keep her car while navigating through bankruptcy.

Increase in Income for Means Test Purposes

The means test is used to determine if an individual qualifies for Chapter 7 bankruptcy, which discharges most unsecured debts. It assesses your income and compares it to the median income in your state. If your income is below the median, you typically qualify for Chapter 7. If it’s above, you must complete further calculations to see if you have enough disposable income to repay some debts under Chapter 13. Starting May 15, 2024, the income thresholds, as well as allowances for food, clothing, and other expenses, used in the means test, increased slightly. These thresholds are periodically adjusted to reflect economic changes, such as inflation and cost of living increases. The higher income limits have the following impact:

More Eligibility for Chapter 7: With higher income limits, more individuals will qualify for Chapter 7 bankruptcy, which can provide a quicker and more complete discharge of debts.
Fairer Assessment: The adjustment ensures that the means test accurately reflects the current economic environment, offering a fairer assessment of a debtor’s financial situation.
Relief for Middle-Class Debtors: Middle-class individuals, who often find themselves squeezed by debt but earn slightly above the old limits, may find relief with the new thresholds.

Practical Example: John, a single filer with an annual income of $62,000, previously exceeded Florida’s median income limit for a single household, which was around $60,000. With the new thresholds reflecting current economic data, the median income was adjusted to $62,973. John now falls below the new limit, making him eligible for Chapter 7 bankruptcy.

Staying informed about these changes is crucial for anyone considering bankruptcy. Consulting with a bankruptcy attorney can provide personalized guidance and ensure you take full advantage of the new exemptions and thresholds. These updates reflect a broader understanding and support for individuals facing financial difficulties, aiming to provide them with the means to recover and rebuild their financial stability.

If you would like to talk to an attorney, contact Attorney Evelyn J. Pabon Figueroa at (407) 647-7887 or epabonfigueroa@pcc.law.

Evelyn Pabon Figueroa, Esq.

Bankruptcy Law