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California Bankruptcy and Income Assessments

California Disposable income in Chapter 7 Bankruptcy

Most of the individual bankruptcy cases filed in the US are done under the Chapter 7 plan. The reason why people always find this option more attractive as compared to the Chapter 13 option is that it allows you to keep your property from the action of creditors. Such property could be easily lost if one filed for bankruptcy under Chapter 13, as it demands that one develops a debt repayment plan that would be subject to fewer exemptions.

Though not all the property would be exempt under Chapter 7 option, California Bankruptcy exemption laws are structured in a manner that allows you to retain most of your property.  Thus most people who file for bankruptcy rarely lose anything in California. 

Qualifying for Chapter 7 Bankruptcy protection, though, is a different matter altogether for such California residents.

The state through local authorities would subject any one person wishing to file for Chapter 7 Bankruptcy protection to a variety of qualification assessments, including the means test. This assessment procedure is meant to assess eligibility for protection under the California Bankruptcy laws.

The authorities thus would be sure to test for your ability to fund a Chapter 13 Bankruptcy plan based on your current and past income. The basis for the decision is the median income relevant to the state, which currently stands at $54,787 a year for a single earner and $73,162 for a household of more than one.

Does it mean thus, one may ask, that I would be ineligible for Chapter 7 protection if you earn more than that?

Well, while the California authorities aim to be fair for both parties in the bankruptcy suit, they still instead protect you from undue hardships than favor the creditors.

As such, they will also assess your disposable income to gauge if you are in a position to pay off the debts. Calculations are done based on the sum of unsecured debts. You would, therefore, still be eligible for Chapter 7 protection if your disposable income will not be able to pay off at least 25% of your debts over five years. The court may, however, reexamine the totality of your circumstances before giving a final ruling.