If you are considering filing for Chapter 7 bankruptcy in California then the first thing you may be wondering is whether you qualify to file for Chapter 7. Although your best option is to consult with a qualified bankruptcy attorney, the following is intended to give you a general idea of whether you can qualify to file for bankruptcy in California.
Changes to the Bankruptcy Code in 2005, affected who can qualify and file for Chapter 7 bankruptcy in California and in all states. One of the changes was the addition of the means test analysis which affects whether you will be required to file for Chapter 7 or Chapter 13 bankruptcy. Not all people who file for bankruptcy must do a means test analysis, it is only if you are above the median income level for your household size in your state. Other people who are not required to complete a means test analysis are those whose debts are primarily non-consumer debts. This means that if the majority of your debts are a result of business then you will not be required to do a means test analysis.
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In California, like in all states there is a census bureau median income based on household size that is used to determine whether you will have to do a means test analysis. If your gross household income is above the median yearly income for California then you will be required to complete a means test analysis to determine if you can file for Chapter 7 bankruptcy. Your last 6 months of gross income is used to develop a projection of your yearly income. In California the following median income applies for cases filed after March 15, 2010:
FAMILY SIZE - 1 EARNER - 2 PEOPLE - 3 PEOPLE - 4 PEOPLE
California - $47,969 - $64,647 - $70,638 - $79,194
The median household income changes and is updated almost every year. To find the updated median household income for the State of California you can go to the US Trustees website to find updated median income tables.
The amounts listed above are based on your gross yearly income for your household. Who must be counted and who you can count as part of your household along with the income that must be counted can affect whether you need to do a means test analysis to qualify for Chapter 7 bankruptcy in California. If you are below the median income for your household size then you are not required to do a means test analysis to qualify for Chapter 7 bankruptcy.
If You Do Not Need to Complete The Means Test, Then Do You Qualify for Chapter 7 Bankruptcy?
If you are not required to complete a means test analysis this does not mean that you qualify automatically for Chapter 7 bankruptcy. Another factor that you must consider to determine whether you qualify is whether there is money available to pay your creditors with. If you have less than $100 after paying for necessary expenses monthly then there is a high likelihood that you will qualify for Chapter 7 bankruptcy. The expenses that are considered necessary are items such as rent, utilities, food, clothing, medical & dental expenses, car insurance, car payment, car maintenance, gas, & health insurance. If after deducing reasonable amounts for each you are left with less than $100 to pay creditors with then you may qualify for Chapter 7 bankruptcy. Generally you will take your net monthly income (income minus taxes) and deduct your necessary expenses to determine this.
Keep in mind that when you deduct your monthly expenses they have to be reasonable for each item. It is unlikely that the court will allow a scenario like the following:
Household size of 1, where the individual earns $3,000 gross monthly income. After deducting for income taxes he is left with $2200 net monthly income for expenses. His monthly expenses are $2150 a month. Although he is left with less than $100 to pay creditors with his monthly budget deducts for $800 a month on food, due to eating out with friends and family. This would be seen as abusive unless there were a special reason that could account for an $800 monthly food bill for 1 person.
If you have available disposable income to pay creditors with then the Trustee can bring a motion for abuse. If you are left with more than $100 dollars to pay creditors with then you may need to file for Chapter 13 bankruptcy. You may need to complete a 36 month payment plan where you contribute your monthly disposable income to pay creditors with.
What Happens if You Are Above the Median Income Level?
If you are above the median income for your household size then you will be required to complete an additional step to determine if you can file for Chapter 7 bankruptcy. The means test analysis is a test that requires that you enter the last 6 months of gross income, then deduct for IRS standardized allowances for household, food, medical expenses and transportation expenses. The IRS also allows for items such as taxes, health insurance payments, life insurance (term), secured payments, childcare, education expenses for children under 18, charitable contributions, alimony, child support and payments for taxes owed to the IRS and state, to determine if there is disposable income to pay creditors with. If there is no disposable income after deducting for these expenses using a means test analysis then you can still file for Chapter 7 bankruptcy. The standardized deductions that the means test analysis uses for some items can be found here.
http://www.justice.gov/ust/eo/bapcpa/20100315/meanstesting.htm
If you fail to meet the means test analysis and are above the median income then you may have to complete a Chapter 13, 60 month repayment plan to your creditors. If you file for Chapter 7 bankruptcy without passing the means test then the Trustee can bring a motion for abuse. If the trustee brings a motion for abuse then you will have to defend the action and show special circumstances that warrant you qualifying for Chapter 7 bankruptcy.
It is important that you consult with an experienced bankruptcy attorney to determine if bankruptcy is an option for you. The above is a simplified explanation and there are a number of other items that can affect whether you qualify for bankruptcy and whether you should file for Chapter 7 bankruptcy. Issues such as the assets that you have, and what type of debts are involved in your case can have an affect on whether bankruptcy is a good option.
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