More California Families Qualify To File Chapter 7 Bankruptcy

Recent good news for families contemplating filing Chapter 7 Bankruptcy in Fresno and throughout California!  Beginning April 1, 2014, more families in California will be able to get a fresh start by filing a Chapter 7 bankruptcy.

One obstacle to filing a Chapter 7 bankruptcy case is the "means test".  Most individuals whose debts are consumer debt (not business debt) have to "pass" the bankruptcy means test.  The bankruptcy "means test" determines whether your income is low enough for you to file Chapter 7 bankruptcy. It is a "test" designed to keep debtors with higher disposable incomes from filing for Chapter 7 bankruptcy. High income filers who fail the means test may use Chapter 13 bankruptcy -- a chapter in bankruptcy that requires debtors to repay a portion of their debts.  

The amount a household earns is just one factor.  A family that does not make much money will surely pass the means test.  However, households that have good paying jobs can also pass the test.  The size of the household and the amount of monthly recurring expenses play an important role as well.  A family of 7 can have yearly income exceeding $100,000 and still qualify under the means test.  Having a lot of expenses, such as paying child support, making a large house mortgage, or having a car payment can help pass the means test.  Here is a simple analysis to determine if your household can pass the means test:

Step One: Is Your Income More Than the Median?Below is the newest median yearly income for a households in California:   

This median yearly income chart just became effective last week.  It was released by the Justice Department. The Justice Department changes the thresholds approximately twice per year.  It last changed in November of 2013.  The changes resulted in fewer families qualifying for Chapter 7 bankruptcy.  I wrote about the changes in a a blog article last November.  If you are reading this article after October of 2014, there is a good chance this information is no longer good.  Click the link to find the most up to date information.  

First, identify how people are in your household.  If you are single, current maximum household income is $48,498.  If there are 4 people in you household, the amount you are allowed to make is $76,211.  If you have more than 4, add $8,100 for each household member.  

If your household income is less than the chart states, you pass. Period. You're done. You do not need to complete the rest of the means test. You can file for Chapter 7.  No need to do the the second step analysis. 

Step Two: Analyze Monthly Expenses
For those whose household income exceeds the state median, the means test computations get significantly more complex. You can still pass the means test, but it will require detailed analysis of your household's monthly expenses.  You must determine whether you have enough income left over (called "disposable income"), after paying your "allowed" monthly expenses, to pay off at least a portion of your unsecured debts (such as credit card bills). If your disposable income adds up to more than a certain amount, you fail the means test and cannot file for Chapter 7 bankruptcy.  You may be required to file for Chapter 13 bankruptcy.

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at [email protected] or by telephone at 1-559-324-1882.
Photo Credit: "happy puppy" by Robert Couse Baker at Flickr