If you would like to file a Chapter 7 bankruptcy you must pass the California means test. The test only applies to higher income filers which means that if your income is below the California median for your household size you are exempt from the test and may file a Chapter 7.
If your income is higher than the California median you will need to complete the means test calculation to determine if you can pay back a portion of your unsecured debts through a Chapter 13 bankruptcy.
Means Test Exemptions
If your debts are not primarily consumer debts then you are exempt from the means test. You are also exempt from the means test if you are a disabled veteran and incurred your debt primarily during active duty or performing a homeland defense activity.
California Median Income
If your currently monthly household income is less than the California median income for a household of your size there is a presumption that you pass the means test and are eligible to file a Chapter 7 bankruptcy.
Your average household income is determined by averaging your monthly income over the last six calendar months. If you are over the median income limit and your income has declined over the last six months, then waiting one or more months might bring your income under the median level for California. Once you determine your average monthly income you multiply that by 12 to determine your annual income for the purpose of California median income test.
1 Member Household - $47,798.00
2 Member Household - $62,009.00
3 Member Household - $66,618.00
4 Member Household - $75,111.00
5 Member Household - $83,211.00
6 Member Household - $91,311.00
7 Member Household - $99,411.00
8 Member Household - $107,511.00
9 Member Household - $115,611.00
10 Member Household - $123,711.00
Means Test
If your income is over the California median income for a household your size then you must complete the means test by calculating your income and expense information
You must collection some of the information needed to complete the calculation, such as your current monthly income, from your own personal records
Income includes almost all of sources of income you may have including, but not limited to, business income, rental income, interested and dividends, pensions and retirements plans, amounts paid by others for your household expenses, and unemployment income.
Much of the information related to your expenses is based on national, California, and local averages and standards and comes from the Census Bureau and the Internal Revenue Service. There are some actual expenses you are allowed to include such as obligations you are legally required to pay and expenses necessary for health and welfare.
After you have collected all the required information, you subtract all of your allowed expenses for California from your income to determine the amount of income under the bankruptcy law that you have available to pay your unsecured creditors in a Chapter 13 plan.
If your total monthly income over the course of the next 60 months is less than $7,475 then you pass the means test and you may file a Chapter 7 bankruptcy. If it is over $12,475 then you fail the means test and don't have the option of filing Chapter 7. If your disposable income under the means test is between $7,475 and $12,475 then you must do further calculations to determine if you have the option of filing a Chapter 7 case.
Keep in mind that just because you can file a Chapter 7 does not mean that should. Generally, a Chapter 7 bankruptcy is a better option if you are not attempting to keep secured property like home with a mortgage but you should consult with an attorney to determine your options and the best course to take.
FAQs
If your total monthly income over the course of the next 60 months is less than $7,475 then you pass the means test and you may file a Chapter 7 bankruptcy.
How often are Chapter 7 bankruptcies denied? ›
Unfortunately, many don't make it that far and their petition is denied. “Chapter 7 applications get denied more often than people think,” Derek Jacques, of The Mitten Law Firm, in Michigan, said. “In my experience, about 15% don't even get approved.
What is the means test in California? ›
The means test formula involves:
Adding six months of your historical gross income and then dividing it by six and then multiplying the answer by 12. The result will be considered your median income. Your median income will then be compared to the California median income for a household of your size.
How is the bankruptcy means test calculated? ›
The means test is calculated by comparing the debtor's average income for the past six months (current monthly income), annualized, to the median income for households of the same size in the debtor's state of residence.
What is the income limit for Chapter 7 in California? ›
California Chapter 7 Bankruptcy Income Limit
| # of People | Annual Income |
|---|
| 1 | $74,819 |
| 2 | $96,600 |
| 3 | $109,458 |
| 4 | $128,533 |
5 more rowsSep 3, 2024
If the debtor's disposable income, projected for a five-year period, is more than 25 percent of the total unsecured debt, the debtor will likely be denied a Chapter 7 filing. If the percentage is less than 25 percent, the debtor will most likely survive the means test and be allowed to continue with a Chapter 7 filing.
What would disqualify you from Chapter 7? ›
Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; ...
What assets do you lose in Chapter 7? ›
Common types of assets and nonexempt property a debtor could potentially lose in Chapter 7 bankruptcy include:
- Vacation properties.
- Investment accounts.
- Stocks and bonds.
- Rental properties.
- Luxury items.
- Valuable artwork.
- Jewelry.
- Antiques.
There are no debt limits for Chapter 7 cases, and this form of bankruptcy may allow all unsecured debts to be completely eliminated. However, a debtor will likely need to turn over certain non-exempt assets to the bankruptcy trustee, who will liquidate these assets and make payments to creditors.
What is included in a means test? ›
This includes details about: savings in bank accounts, building societies, ISAs or premium bonds. stocks and shares you own. property or land you own.
A means test determines if a person or household is eligible to receive some sort of benefit or payment. Means-tested benefits include many government assistance and state and federal welfare programs that measure a family's income against the federal poverty line.
What is the California reading test? ›
The California Achievement Test, CAT E/Survey (Grades 4-12), is a nationally normed standardized test normed in 1986 that measures achievement in the areas of Reading, Language Arts, and Math. It meets most states' requirements for an annual assessment for homeschool and private school use.
What is the 2 4 6 8 rule in bankruptcy? ›
The 2-4-6-8 Rule of Filing Bankruptcy Again
Two Years – Two years between a prior Chapter 13 bankruptcy case and a new Chapter 13 Case. Four Years – Four years between a prior Chapter 7 bankruptcy case and a new Chapter 13 case. Six Years – Six years between a prior Chapter 13 bankruptcy case and a new Chapter 13 case.
How do you calculate income for a means test? ›
Add up every dollar of applicable income received during the appropriate 6-month period, then take that 6-month total and divide it by six to come up with a monthly average, the “current monthly income.” Now that you have calculated your “current monthly income,” multiply that by 12 to come up with your annual income.
What is the average bankruptcy score? ›
The truth is that bankruptcy can definitely tank people's credit scores. But in most cases, these people already have a bad credit score because of how much debt they have. In fact, the average credit score after a bankruptcy discharge can vary between 400 and 530.
What is the means test rule? ›
A means test is a determination of whether an individual or family is eligible for government benefits, assistance or welfare, based upon whether the individual or family possesses the means to do with less or none of that help.
Is the means test based on gross or net income? ›
Calculation of Current Monthly Income: To begin the means test, debtors calculate their current monthly income, which equates to twice the gross income earned in the six months leading up to the bankruptcy filing.
How does the mean test work? ›
How does it work? The means test takes a snapshot of the last six months of your income and compares it to the median income in your state and to your personal debt and expenses.
What does mean means tested benefits? ›
Means-tested benefits include many government assistance and state and federal welfare programs that measure a family's income against the federal poverty line. Universal or unconditional benefits, such as public schools, Medicare, and social security retirement income do not feature a means test.
