Do You Qualify?

Worried Many people have been convinced that the bankruptcy reforms that went into effect in October of 2005 have made it impossible for most people to file Chapter 7 bankruptcies. Nothing could be further from the truth. Yes, there is now a “Means Test” which was intended to screen out people with too much income. But, in our experience almost everyone whom we have counseled with regarding filing a Chapter 7 bankruptcy who could have filed for Chapter 7 bankruptcy before the 2005 reforms could still file a Chapter 7 bankruptcy after the reforms. Nationwide studies have confirmed this.

How does the “Means Test” work? First you see if you are over or under the median income for a family of your size in California. (Single $47,363, Two people $62,690, Three People $68,070, Four People $77,014) If your household income is under the median income for the same size household in California, then you have passed the Means Test and qualify to file a Chapter 7.

If you are over the median income, it DOES NOT mean you are disqualified from filing a Chapter 7 bankruptcy. Most people can still file. There is just more paperwork to do. With the additional paperwork you are allowed to deduct taxes, housing costs, transportation costs, secured debt payments, medical costs, and many other costs. After deducting these costs, most people have very little income that could be used to pay unsecured creditors; and therefore, can file a Chapter 7 bankruptcy.

The bottom line is, if you are having financial problems, do not let the “Means Test” scare you away from seeking good legal advice from a qualified bankruptcy attorney. Despite anything you may have heard, there is a very high chance you can still file a Chapter 7 bankruptcy. And, if you are one of the few who cannot file a Chapter 7, you can probably file a Chapter 13 bankruptcy and still be protected from creditors.

Photo by Santi LLobet