California Median Income and the Means Test in Bankruptcy

Requirements for Eligibility to Chapter 7 Bankruptcy in Simi Valley

Throughout the U.S, debtors are offered relief from the actions of the creditors primarily through either Chapter 7 or Chapter 13 bankruptcy laws. While the two approaches are designed to protect the individual from the pitfalls of severe financial distress, they differ in the approach to securing your property and valuables. Corporations mostly use the Chapter 13 specifications, while individuals usually aim to file for petitions under Chapter 7 specifications, given the flexibility it accords the debtor with their credits.

Filing Bankruptcy through Chapter 7, though, requires one to pass the means test, designed to assess your capability to repay your debts.

California laws have in place a pre-set median used as the reference for one to pass the means test. If your income thus is higher than the state’s median, the chances are that you will not qualify to file for Bankruptcy under Chapter 7.

According to the California State bankruptcy laws, eligibility for Chapter 7 would mean that the debtor’s current monthly household income is lower than the state’s median income for a similar size household. This income is determined by averaging your income over the past six months before filing for the motion.

The means test is administered when one’s income is above the median income for a similar size household. The purpose of conducting this test is to determine your capability to pay off the debts using your surplus from your income.

One would thus need to present themselves with documentation of your income over the previous six months to pass the first step.  Additionally, one would have to submit the documentation of their household expenditure over the same period to ascertain the level of disposable income available after that. If the state determines that both your household income and the disposable income after expenditures are low enough, you would be allowed to proceed and file for Bankruptcy under Chapter 7.

Exemptions, however, do exist regarding this procedure. Disabled veterans who incurred debts during their time in service are some of the individuals exempted from the means test before filing for Chapter 7 bankruptcy. Individuals with obligations other than consumer debts are also exempted from the means test under the California laws.