Chapter 7 Bankruptcy Offers Refuge to Californians Who Qualify

There are few states that have been hit as hard by the economic downturn than California. The government and its people have been struggling. In the past three years, the number of bankruptcy filings has tripled.For most families contemplating bankruptcy, the most attractive form is Chapter 7 because it is quick, being completed in months rather than years. After fighting to pay their bills, families who decide to pursue bankruptcy are exhausted and simply want to be done paying back debts so they can move on with their lives. The other appealing feature of Chapter 7 bankruptcy is that it involves no payback of debts. The challenging part for families is qualifying for it. This article is intended to give the reader an overview of what is necessary to qualify for Chapter 7 bankruptcy in California.Chapter 7 Bankruptcy in California: A Two-Part Test

There are two essential components to qualifying for a Chapter 7 bankruptcy. Both elements must be satisfied for an individual or spouses to qualify for a Chapter 7 bankruptcy.

First, the family must show that they do not have sufficient household income to repay their debtors. A monthly submission of a family’s income and household expenses must show there is not any extra money left over that could be used to pay creditors. With the high cost of living in California and soaring gas and food prices, this is usually the easy hurdle. It is important to note that the expenses claims must be reasonable. For example, $The second component is more difficult, passing the means test.

The Means Test in California

The means test is used by the bankruptcy court to determine whether a family may qualify for Chapter 7 bankruptcy. It looks at the average monthly gross income for a household for the prior six months and annualizes that figure. If the household income is beneath the threshold and the budget does not show any available disposable income, then the person presumably qualifies for a Chapter 7 bankruptcy filing.

The means test is based on calculations from the Census Bureau. The mean amounts vary depending on state and family size. The median income for a household is typically adjusted at least once a year, sometimes more frequently to account for fluctuating household incomes. Currently, the median income numbers for California are:

•· Single person household: $48,009

•· Two person household: $62,970

•· Three person household: $68,670

•· Four person household: $78,869

•· An additional $7,500 is added for each additional person beyond a family of four.

For those who do not meet these threshold amounts, they may still qualify for a Chapter 7 bankruptcy provided they can document additional accepted reasonable living expenses for the court. The debtor will complete the extensive means test form, which deducts additional living expenses such as taxes, health insurance, daycare, etc., to determine a monthly disposable income.

The disposable income is then multiplied by 60 to determine the available funds over a five year period. If the amount is under $7,025 the debtor passes the means test. If it exceeds $11,725 the debtor will not qualify for a Chapter 7 bankruptcy and must file a Chapter 13. If the disposable income falls between those numbers, the debtor must then compare their debt with their available income. If the disable income is less than 25 percent of the debtor’s total unsecured non-priority debt, the debtor will qualify for a Chapter 7. If it exceeds 25 percent of that debt, the debtor will be forced to file a Chapter 13.

Bankruptcy is a complicated area of law and not all expenses may be allowed. There are many rules that must be followed and requirements that must be met. If you are considering filing bankruptcy, you should speak with an experienced local bankruptcy attorney who can advise you of your best bankruptcy options.