What does 1 Peter 4:17 mean?

God does, in fact, judge His children on this side of eternity. That's a hard idea for some of us, but it is what Peter is saying here. The writer of Hebrews also makes clear that our God is a Father who disciplines His children (Hebrews 12:3–17). We must understand this carefully, however. This is a not judgment for the purpose of punishing our sins, or making us worthy of heaven. Peter has made clear in this letter that Jesus was our substitute on the cross (1 Peter 3:18). He was punished for all of our sins. That judgment is complete.

The judgment Peter refers to here is for the purpose of purifying our faith (1 Peter 1:6–7). It is meant to draw us to trust God more deeply, to abandon our hope of finding satisfaction in anything apart from Him. It's our faith, our trust in Him, which our Father values in us. He values it so much that He is willing to allow us to experience great suffering to help us grow fully dependent on Him.

Peter further makes a sobering point regarding God's judgment. God is willing to allow His dearly loved children to suffer under his judgment, in order to purify and rescue them. Consider then, that those who fully reject faith in Christ, declining the gospel, will experience far, far worse.