California Bankruptcy Means Test and Income Limit 2024

Chapter 7 Means Test Explanation

The means test is an income test you must pass to file for bankruptcy. It's a standardized form that you fill out, and it will calculate your average monthly income. Then, it multiplies that by twelve to get your average annual income.

There are a few additional things you need to know about this means test, especially if you're in California. First, the test considers your entire household income, even if your spouse isn't filing with you (unless you're legally separated). They use data from the Census Bureau to see how your income and others in California compare.

To calculate your average monthly income, you have to fill in the monthly income you earned from all sources during the six months prior to filing bankruptcy. For example, if you're planning on filing on September 15th, you'd look at the period from March 1 to August 31. If your income varied during those six months, add them all up and divide them by six. If you and your spouse earn from a rental property, you'd only list it once. And if you don't have anything to report for a particular line, write $0.

You might want to check out this average income calculator if your income fluctuates. It's specifically designed for the California means test, and it'll give you an estimate of your average monthly income.

Now that we have all that covered let's dive into how they calculate the means test in California for bankruptcy cases filed in 2024.

California Chapter 7 Bankruptcy Income Limit

We'll start with some information about household income levels for bankruptcy cases in California. We'd like to remind you that these figures are specifically for cases filed on or after April 1, 2024. The income levels are updated typically every six months or so. Make sure you double-check the most up-to-date information.

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But what if you have an even larger household? You can add $9,900 to the annual income limit for each additional family member beyond nine.

What Is Considered Income?

Let's talk about income and bankruptcy, which means tests. Not all income is included in the test. For example, disability and social security income are not considered.

In California, some other types of income are included in the bankruptcy means test. To give you a better understanding, we'll list some of the income types that fall under this category below:

1. Salaried income
2. Spousal income: If you're in a joint case or not legally separated, your spouse's income is fair game.
3. Hourly and overtime income
4. 1099 Income: Your income is included if you're an Uber or Lyft driver.
5. Net Rental Income: If you're earning money from renting out property, that's in too.
6. California government income
7. Child support and Alimony
8. Dividend, Interest, and Royalties: Money from investments and creative endeavors
9. Pension and Retirement Income
10. Net business income
11. Annuity payments
12. Unemployment compensation
13. Worker's Compensation Benefits

Now, let's shift gears and discuss how they calculate household size.

What Is Considered In Household Size?

One question that often pops up is how household size is determined. In general, anyone who is living in your home on a a regular basis is considered as part of your household. However, financial dependence also plays a role. For example, if you have children who are living away from home for college, yet you still support them financially, they may still be considered as part of your family.

As a rule of thumb, anyone who lives within your home, and who you support, depend on, or are connected with financially, count as household members.

California Above Median Bankruptcy Means Test

If you've looked at the calculator above, and it seems like your income is above the household income level there's still a chance you might qualify for bankruptcy based on the following two means test forms.

The first form is called the "Statement of Exemption from Presumption of Abuse Under §707(b)(2)". It's a way of saying you might still qualify if you can prove you're not trying to take advantage of the bankruptcy system. The second form is the "Chapter 7 Means Test Calculation". This allows you to deduct your allowable monthly expenses from your current income to determine your disposable income. These expenses are a mix of national and California costs.

Disposable income is the money you have left after paying your expenses, and it's what you can use to repay your debts. If your disposable income falls below a certain amount, you could still qualify for Chapter 7 bankruptcy.

Whether or not you make more than the income limit for your household size, you can use our California Chapter 7 Bankruptcy calculator below to estimate qualification, cost, as well as pros and cons.

Allowable deductible expenses

You may also be wondering what expenses you can deduct. Here are some that may be considered:

• First, you can deduct mandatory employment expenses like union dues, retirement plans, and work uniforms.
• Health and disability insurance premiums
• Don't forget about income taxes
• Child care expenses
• Term life insurance premiums
• Those are deductible if you're making secured debt payments for your car or home.
• Alimony and child support payments
• Charitable contributions

You can also deduct other expenses for exceptional circumstances. The maximum amounts allowed for these expenses depend on the number of people in your household. Check out the current national standards for the details.

• Housekeeping supplies
• Clothing expenses
• Food
• Personal care services and products
• Housing and utility expenses
• Transportation expenses
• Out-of-pocket healthcare expenses

If you have any more questions, contacting a local bankruptcy attorney in California is always a good idea. They can give you a free evaluation and help you navigate the process.

What Happens If You Fail the Bankruptcy Means Test?

If you do not initially pass the bankruptcy means test, there are still some avenues you can explore. Take, for instance, the option of filing for Chapter 13 bankruptcy in California. You can explore other bankruptcy alternatives like debt settlement, management, or payoff planning.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy in California is like a wage earner's plan. You make payments to repay some of your unsecured debts over time. The good news is that you can usually keep your assets, and there's no need to meet any specific qualifications as long as your debt falls within certain limits. It stays on your credit report for seven years instead of ten, like Chapter 7. The payment plan can last 36 or 60 months, but your plan might be shorter if you're in a 100% Chapter 13.

Now, why would someone choose Chapter 13 over Chapter 7 bankruptcy? One reason is if you have more equity than what's allowed under the California bankruptcy exemption. It will enable you to protect your assets while dealing with your debts.

Debt Settlement

You may not want to go the bankruptcy route at all but want to explore debt settlement.

Picture this: you owe $50,000 in debt. But with debt settlement, you can negotiate with your creditors and bring that number down to a more manageable $25,000.

Debt settlement is not a way to make your debt disappear overnight. Instead, it's a program that typically lasts 12 to 60 months. During this time, you'll be on a payment plan, chipping away at your reduced debt bit by bit.

Here's something to keep in mind: not all debt settlement companies are the same. Some charge high fees, taking far more than 25% of your enrolled debt. So, before you start a business with a debt settlement company, do the appropriate research.

Luckily, there are resources to help you make an informed decision. The Consumer Finance Protection Bureau has all the up-to-date information on debt settlement programs. And if you want some personalized advice, feel free to contact us.

Here's a little tip, don't stress about finding a debt settlement company local to you. Many of these firms operate nationally, so you can cast your net wide and find the perfect fit, no matter where you are in California or beyond.

Debt Management

Debt management, also known as credit counseling, is a way to negotiate with your creditors to lower the interest rate on your debt. Let's say you're stuck with a 22% interest rate on your debts. A debt management company can negotiate with your creditors, lowering that interest rate to a much more manageable 9%.

Something to remember is that debt management companies are often non-profit organizations that specialize in working with credit cards. Therefore they might be unable to help you with unsecured personal loans. When you sign up for a debt management program, it's like enrolling in a payment plan. You'll make monthly payments for some time, usually between 36 and 60 months. Similar to debt settlement, many debt management firms are national, meaning you don't have to limit your search to just local options in California.

Summary

Understanding the bankruptcy means test and California Chapter 7 Income Limits can be a bit overwhelming. Many folks prefer Chapter 7 bankruptcy because it's often cheaper than other options regarding getting rid of debt.

So, let's break it down. Here's how the Chapter 7 bankruptcy means test and income limit work in California:

1. The first part compares your household income to the California income limit.
2. Suppose your household makes more than the income limit. You may still qualify for Chapter 7 bankruptcy in California based on your expenses and deductions.
3. If you fail, other options are still available, like Chapter 13 bankruptcy, debt settlement, and debt management.

Hopefully, this article has shed some light on the subject. If you want to know if you qualify for Chapter 7 bankruptcy in California, give the California bankruptcy means test calculator below a try.