Often, people who call our Clearwater office for a bankruptcy consultation already have a chapter in mind. They have Googled, they have heard from a friend, they have read a forum thread. Roughly half of them have it wrong, not because they are not paying attention, but because the real decision turns on facts that almost never make it into a punchy anecdote. This is the framework we use in real intake conversations to decide whether someone is a Chapter 7 filing, a Chapter 13 filing, or, sometimes, neither.

How the Means Test Actually Works in Practice

The means test is primarily a two-step test. Step one is simple: take your last six months of household gross income, multiply it by two, and compare it against the median household income for your state and household size. If you are under the median, you pass. Chapter 7 is available. No further math.

Step two, the long form, only matters if you are above the state median. There, you subtract allowed expenses, including housing, transportation, food, child care, taxes, and certain debt payments, from your gross income. What is left is your "disposable income." If it is low enough, you still qualify for Chapter 7. If it is high enough, the law presumes you can pay creditors something and pushes you toward Chapter 13.

The state median figures are updated by the U.S. Trustee Program twice a year, in April and November, and they move with the economy. In Florida, the April 1, 2026 update raised the line enough to flip several clients we had previously diagnosed as Chapter 13 cases.

What Is Exempt vs. Non-Exempt, and Why State Matters So Much

As I often explain, Chapter 7 is an “exchange process.” The government agrees to wipe out your unsecured debts (notwithstanding a few exceptions). But in exchange for this benefit, the filers’ buy-in is that if they have assets that exceed their necessities, they agree to give up those assets or pay in extra to keep them.

Your "Exempt" property is what you are able to keep; its what the bankruptcy estate cannot take from you to pay creditors. Every state has its own exemption schedule, and a handful let you choose between state and federal exemptions.

The categories that matter most for typical consumer filers are these:

Homestead. Florida and Texas have the most generous homestead exemptions in the country. Florida protects unlimited equity in a primary residence, subject to acreage limits. Most other states cap the protected equity, often in the $25,000 to $150,000 range.

Vehicles. Every state has a per-vehicle exemption, and the dollar figure ranges from a few thousand dollars to over $10,000.

Retirement accounts. ERISA-qualified accounts, such as 401(k)s, 403(b)s, and pensions, are fully exempt under federal law in every state. Traditional and Roth IRAs are protected up to about $1.7 million federally, with several states, including Florida, adding unlimited state-level protection.

Wildcard exemptions. Some states give you a flat dollar amount you can apply to any property of your choice, which is useful for items that do not fit another category.

The same case can be a no-brainer Chapter 7 in Florida and a complicated Chapter 13 to protect the house in a low-homestead state. State residency for exemption purposes is determined by where you have lived for the prior 730 days.

The Trade-Offs When There Is a Non-Exempt Asset in the Picture

One of the most common questions I get is, "What happens if I have an asset, (usually a car) that exceeds the amount of exemption?" In most cases, these issues can be strategically navigated through a few different options:

Surrender the asset. Hand the property to the trustee, who liquidates it and distributes the proceeds to unsecured creditors. Cleanest exit when the asset is replaceable.

Buy out the non-exempt portion. Make an arrangement with the trustee to pay the cash value of the non-exempt equity, often in installments, and keep the asset. The client in the $14,000 truck example pays the trustee $9,000 over a few months and keeps the vehicle. The total still typically costs far less than what gets discharged in the case.

File a Chapter 13 instead. A Chapter 13 plan must pay unsecured creditors at least what they would have received in a Chapter 7 liquidation, but you keep your property and pay the equivalent value over a 3–5 year plan. Often the right answer when multiple non-exempt assets stack up.

In nearly every case, there is a strategic option to deal with non-exempt property that allows for a controlled outcome. Usually, particularly for a vehicle, there are options to allow the filer to keep the vehicle. And in nearly all cases, the benefits obtained by the bankruptcy greatly outweigh whatever the commitment may be.

What Life Looks Like 6, 12, and 24 Months After Discharge

At 6 months post-discharge, most clients have a "discharged in bankruptcy" line on every formerly derogatory tradeline. The credit score is starting its recovery. The collection calls stop. The mailbox feels different.

At 12 months, a secured credit card opened immediately after discharge has reported a year of on-time payments. Most clients in this window are 100-plus points above their post-filing low. The bankruptcy entry is still on the report, but it is no longer the most recent activity driving the score.

At 24 months, the FHA mortgage waiting period clears for Chapter 7 filers, assuming the rest of the file underwrites. Most clients who work proactively on their credit may have a score of 700 or above. The bankruptcy entry stays on the report, 10 years for Chapter 7, 7 for Chapter 13, but at this stage it is substantially aged and no longer dominant in scoring decisions.

Real recovery is faster than the "10 years" number suggests.

The 90-Day Mistakes That Wreck Either Case

The 90-day window before filing is where the most avoidable damage happens. The four mistakes I see most often are these:

Paying back family members or close friends. Repayments to insiders within one year of filing are "preferential transfers" that the trustee can claw back from the recipient. The relative who lent you $3,000 last summer becomes the trustee's next collection target.

Running up the credit cards. Purchases made in the 90 days before filing, especially luxury goods over $800, are presumptively non-dischargeable. Cash advances over roughly $1,100 in the same window face the same treatment.

Transferring assets to a family member to "protect" them. Fraudulent-transfer rules reach back 2 years under federal law and up to 4 years under most state laws. The transfer does not protect the asset. It usually adds a fraudulent-conveyance claim against the person who received it.

Cashing out a 401(k) or IRA to pay creditors. Retirement accounts are exempt in bankruptcy. The cash you take out of them is not. This is the single most expensive pre-filing mistake we see, and it is almost always preventable.

When Bankruptcy Is the Wrong Answer

Bankruptcy is the right tool for many people and the wrong tool for a smaller group. The wrong-fit cases I send back out the door look like this:

Almost all your debt is non-dischargeable. Recent tax debt, student loans with narrow exceptions, domestic-support obligations, criminal restitution, and debts arising from intentional wrongdoing do not get discharged. If those make up most of your liability, bankruptcy does not move the needle.

A single negotiated settlement would do it. If you have one $9,000 medical debt and the hospital will take $2,500 to close the account, that may be the right move, not a Chapter 7 that triggers a 10-year credit report entry.

Bankruptcy is a tool. The honest practice is matching the tool to the situation, not the situation to the tool.

About the Author

Michael A. Ziegler, Esq. is a Florida-licensed consumer bankruptcy attorney (Florida Bar No. 74864) and the Found Partner of Ziegler Diamond Law in Clearwater, Florida. His practice focuses on consumer Chapter 7 and Chapter 13 cases, debt-collection defense, and Fair Debt Collection Practices Act litigation.

This article is general legal information and not legal advice for any specific situation. Bankruptcy rules vary by state and by case. Consult a consumer bankruptcy attorney licensed in your state about your specific situation.