California consumers who are facing overwhelming debt may be considering filing for bankruptcy. Personal bankruptcy offers consumers various forms of protection, which is available through Chapter 7 or Chapter 13 bankruptcy. By completing a means test, consumers will be able to determine the chapter of bankruptcy for which they qualify. If this sounds intimidating, consumers may find comfort in knowing that an experienced bankruptcy attorney can guide them through the means test and subsequent bankruptcy procedures.
To determine if you will be eligible to file for Chapter 7, your income will be analyzed. As a first step, the state's median income per family will be compared to your average income per month for the six months prior to the bankruptcy filing. Your income must include all forms of compensation you receive, except for tax refunds or Social Security benefits. If the state's median income exceeds your average income, you may be able to file for Chapter 7 bankruptcy.
However, the bankruptcy court may convert a Chapter 7 bankruptcy to a Chapter 13, if the bankruptcy trustee determines that your income is sufficient to cover allowable expenses and payments on a repayment plan. If you do not pass the means test, your legal counsel may object to you being required to file a Chapter 13 by demonstrating special circumstances that may exist, such as the need for costly medical treatment or an unexpected job loss. Special circumstances will have to be justified by documentation. It will then be up to the bankruptcy court to determine under which chapter you may file.
In a Chapter 7 bankruptcy, your debts will be discharged, while your assets will be liquidated to pay creditors. Chapter 13 bankruptcy involves paying debts over a set period according to a court-approved repayment plan. Our California bankruptcy website will provide answers to more questions about the Chapter 7 means test.
Source: FindLaw, "The Bankruptcy Means Test", Dec. 16, 2014