Understanding the Bankruptcy Means Test in California
If you are one of the millions of Americans struggling with consumer debt, filing for bankruptcy might be your best option for finding relief. A few different types of consumer bankruptcy are available for individual debtors. The two most common forms of individual, nonbusiness bankruptcy are Chapter 7 and Chapter 13. Determining the best form of bankruptcy for you depends on the type and amount of debt you owe as well as your level of income and other finances. For debtors who do not have a significant source of income, Chapter 7 bankruptcy may be the best option.
In order to qualify for Chapter 7 bankruptcy, a debtor must satisfy what is known as the “Means Test.” The Means Test evaluates a debtor’s finances to determine if they should be permitted to rely on the relief afforded by Chapter 7 bankruptcy. In this article, we review the Means Test and what it means for debtors in California. If you are dealing with crippling debt, reach out to a dedicated Chapter 7 bankruptcy attorney at the Ventura offices of Rounds & Sutter to discuss your debt, your finances, and your options for relief.
Means Test Options: Median Income vs. Full Means Test
To be eligible to file for bankruptcy under Chapter 7, you must satisfy the Means Test. The easiest way to qualify for Chapter 7 is to have an income below the state median. Even debtors whose household income is above the state median may qualify for Chapter 7 by going through the more thorough, full Means Test.
Median Income Level in California
The median income for the Means Test varies by state and is periodically updated to accurately reflect current income levels. The Means Test median income also varies depending on the number of persons in the household, reflecting the reality of multiple income-earners.
For bankruptcy petitions filed on or after May 1, 2020, the median income in California is as follows:
|Number of People in Household||Monthly Median Income||Annual Median Income|
Households with additional persons benefit from an increased median income level. Income is calculated by looking at the debtor’s income for the six-months prior to filing. A debtor who previously had a higher income but has been laid off in the last year, for example, would be able to rely on their most recent income to satisfy the Means Test. Speak with a knowledgeable Chapter 7 bankruptcy attorney to discuss your income, your family, and your finances and find out if you are eligible for Chapter 7 bankruptcy.
The Full Means Test
Debtors whose household income exceeds the Chapter 7 income cap may still be eligible for Chapter 7 bankruptcy. The full Means Test compares the debtor’s income to their expenses to determine whether they should benefit from Chapter 7 relief based on their “disposable income.” Applying the Means Test involves deducting all household expenses from the debtor’s gross income, including housing costs, utilities, medical expenses, child care, taxes, insurance, tithing, and others. If a debtor does not have any disposable income left after accounting for reasonable expenses, then they are eligible to file for Chapter 7.
Income from all sources over the previous six months must be included as part of the Means Test calculation. That means both taxed and untaxed income, including wages, salary, tips, bonuses, interest, dividends, royalties, retirement income, unemployment and workers’ compensation, and others. Certain types of income are excluded, including Social Security benefits, payments to victims of war crimes, and payments to victims of terrorism. Applying the Means Test can be a complex procedure, and it is important to be accurate and not overlook any sources of income or possible deductions. Mistakes can lead to a debtor losing their eligibility. Work with a seasoned and detail-oriented bankruptcy means test attorney to ensure you put together the strongest petition for Chapter 7 bankruptcy.
Get Help Finding Your Fresh Start with a California Bankruptcy
At Rounds & Sutter, we pride ourselves on taking a personal and individualized approach toward helping our clients. We take the time to analyze your situation, listen to your needs, and work together toward finding the best path forward. We will walk you through all of your options, including both bankruptcy and non-bankruptcy options, such as loan modification or debt settlement. Start your journey to a brighter financial future today by calling Rounds & Sutter at our offices in Ventura, Santa Barbara, and Westlake Village for a free consultation.