Chapter 7 Means Test California
Practice Areas
Chapter 7 Bankruptcy Means Test
Filing a Chapter 7 bankruptcy offers a fresh start for individuals overwhelmed with debt. However, navigating the confusing eligibility criteria, especially the means test, can be challenging. At Marshack Hays Wood, our experienced bankruptcy lawyers specialize in guiding clients through the Chapter 7 means test, ensuring that they understand and efficiently meet the necessary requirements.
This vital assessment determines eligibility for Chapter 7 bankruptcy by comparing an individual’s income to the median income in California, providing a clear path for those seeking financial relief. With our expertise in bankruptcy law, Marshack Hays Wood is committed to offering personalized and effective legal solutions to help clients regain their financial stability.
To learn more about filing a Chapter 7 bankruptcy petition, schedule a free consultation with one of our Orange County bankruptcy attorneys by calling (949) 333-7777 today.
What is the Chapter 7 Means Test in California?
The Chapter 7 means test is an important step in the bankruptcy process, designed to determine eligibility for individuals seeking relief under Chapter 7 bankruptcy. This test compares an individual’s income against the median income for households of similar size. If the income is below the median, eligibility for Chapter 7 is straightforward.
However, surpassing the median income does not automatically disqualify an individual; it leads to further assessment of financial obligations and expenses by the California bankruptcy court.
What is the Median Income in California?
According to the latest data provided by the Federal Reserve Economic Data (FRED) database, the median household income in California is $89,870 in 2023. This figure represents the average income of a typical household in California, adjusted for size and periodically updated to reflect economic changes. It varies significantly across the state, influenced by factors like location, household size, and prevailing economic conditions.
More recent data from the California Department of Housing and Community Development (HCD) shows that the median household income for a single person is $90,300 in 2024.
What is Considered Low Income in California?
The low-income thresholds are region-specific due to California’s diverse economic landscape, meaning what is considered low income in one area may differ. Generally, low income is defined as earnings that fall significantly under the state’s median income level, often quantified as less than 80% of the median.
The table below illustrates the low-income levels of those living in Orange County as of 2024.
Number of People Per Household: | 1 | 2 | 3 | 4 | 5 | 6 | |
Acutely Low Income | 13,550 | 15,500 | 17,400 | 19,350 | 20,900 | 22,450 | |
Extremely Low | 33,150 | 37,900 | 42,650 | 47,350 | 51,150 | 54,950 | |
Very Low Income | 55,250 | 63,100 | 71,050 | 78,900 | 85,250 | 91,550 | |
Low Income | 88,400 | 101,000 | 113,650 | 126,250 | 136,350 | 146,450 | |
Median Income | 90,300 | 103,200 | 116,100 | 129,000 | 139,300 | 149,650 | |
Moderate Income | 108,350 | 123,850 | 139,300 | 154,800 | 167,200 | 179,550 | |
The full list of counties can be found here:
https://www.hcd.ca.gov/sites/default/files/docs/grants-and-funding/income-limits-2024.pdf
How Do I Qualify for Chapter 7 in California?
Several factors come into play when qualifying for Chapter 7 bankruptcy in California. While the Chapter 7 bankruptcy means test is significant, it’s also important to understand the other qualifying factors. These include an assessment of your income, expenses, types of debts, financial obligations, asset evaluation, and previous bankruptcy filings. Compliance with mandatory credit counseling is also required.
What Debts Can Chapter 7 Discharge?
Filing for Chapter 7 bankruptcy offers a significant advantage: the discharge of eligible unsecured debts. Notably, this bankruptcy option does not impose any debt limits, relieving individuals from a wide range of unsecured debts.
Debts eligible for discharge include credit card debt, which quickly accumulates with high interest rates. Medical bills, another significant source of financial stress, can also be discharged through Chapter 7, providing much-needed relief to those struggling with healthcare expenses.
Personal loans from traditional lenders or individuals can also be included in the discharge. Overdue utility bills, which can lead to service disconnection and added fees, can also be eliminated, granting individuals a fresh start.
What Debts Can Chapter 7 Not Discharge?
Chapter 7 bankruptcy provides a valuable opportunity for debt relief, but there are certain debts that it cannot discharge. These debts typically include child support and alimony obligations, ensuring the financial responsibilities towards dependents are maintained. Student loans are generally not dischargeable unless they meet strict criteria proving undue hardship. Recent tax debts and government fines or penalties are also usually non-dischargeable. Court-ordered restitution also falls into the category of debts that are not eligible for discharge.
When Should I File for Chapter 7 Bankruptcy?
Knowing when to file for Chapter 7 bankruptcy is a major financial decision that depends on your circumstances. Generally, it’s advisable to consider Chapter 7 when your credit card bills and medical expenses become overwhelming and you cannot repay them.
If you’re facing foreclosure on your home or repossession of assets like a car, Chapter 7 can provide relief and potentially stop these actions. Timing is crucial, and it’s essential to file when your financial situation is stable enough to benefit from the fresh start that Chapter 7 offers.
What Should I Avoid on the Means Test?
Regarding the California means test, it’s important to avoid actions that could potentially complicate your eligibility for filing bankruptcy. Ensure you accurately report your income and expenses, as misrepresentations can lead to legal issues.
You also want to avoid any actions that may artificially inflate your disposable income, such as making unnecessary or excessive payments to creditors just before filing. Engaging in these activities can raise suspicions of fraud or manipulation and could jeopardize your bankruptcy case.
What is Disposable Income on the Means Test?
Disposable income is the income that is left over after deducting allowable expenses from your average monthly income. These allowable expenses typically include housing, utilities, transportation, and healthcare costs. The calculation of disposable income helps determine your eligibility for Chapter 7 bankruptcy.
If your disposable income is low or negative, it may indicate that you qualify for Chapter 7. However, if your disposable income is substantial, it could suggest you have the means to repay a portion of your debts through a Chapter 13 repayment plan instead.
How to Calculate Current Monthly Income for the Means Test
To calculate a debtor’s current monthly income (CMI) for the means test, follow the steps listed below:
- Gather income information for the six months leading up to your bankruptcy filing.
- Calculate your gross income by adding up all income sources.
- Annualize your gross income by multiplying it by 12.
- Compare your annualized income to the state’s median income for a household of your size.
- If your income is below the median, you pass the Means Test and may be eligible for Chapter 7.
- If your income exceeds the median, divide your annualized income by 12 to get your monthly income.
- Deduct allowable expenses from your monthly income to calculate disposable income.
Do Businesses Need to Complete a Means Test?
No, businesses do not need to complete a means test when filing for bankruptcy. The means test is primarily designed for individuals or households seeking relief under Chapter 7 bankruptcy.
Businesses typically file for bankruptcy under different chapters, such as Chapter 11 for reorganization or Chapter 13 for small businesses. While the means test assesses an individual’s eligibility based on income and expenses, business bankruptcies involve a distinct set of criteria and procedures tailored to their financial situation and goals.
Contact a Chapter 7 Lawyer at Marshack Hays Wood Today
At Marshack Hays Wood, our experienced Orange County Chapter 7 bankruptcy lawyers are here to guide you through the Chapter 7 bankruptcy process, offering expert advice and personalized solutions to help you regain control of your financial future. Whether you’re facing overwhelming unsecured debt, considering a debt settlement, or needing assistance with the means test, our dedicated legal team is ready to assist you every step.
Contact a Chapter 7 lawyer at Marshack Hays Wood at (949) 333-7777 to take the first step toward a fresh financial start. Your path to relief and recovery begins with us.
READY TO GET STARTED?
At Marshack Hays Wood, our attorneys provide the legal support you need to move forward with confidence. Let us help you take the first step toward financial stability.
