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Understanding the bankruptcy means test

If you, like many California residents, find yourself stressing over increasingly overwhelming debt, you may be thinking about whether filing for bankruptcy may help you get back on your feet. Depending on circumstances, filing for bankruptcy may help you get that fresh financial start you need to begin rebuilding, but you may not know exactly what type of bankruptcy filing might be right for you. While the majority of modern bankruptcy filings involve the Chapter 7 format, you must first pass the bankruptcy means test if you wish to proceed with this method. At Tsao-Wu & Yee LLP, we understand how the bankruptcy means test works, and we have helped many clients rebuild financially through Chapter 7, Chapter 13 and other means.

Per Nerdwallet, the bankruptcy means test assesses your income to determine whether you can seek debt relief through a Chapter 7 bankruptcy, which is generally reserved for low-income earners. If you make too much money to qualify or a Chapter 7 bankruptcy, you may still be able to seek relief through a different bankruptcy method, such as a Chapter 13, but you must repay at least some of your debts if you proceed with a Chapter 13.

Just what does it take to pass the bankruptcy means test? The easiest way you can pass the test is if your household income already falls below that of the average household income in California. If so, it is that simple – you automatically pass the test. If your household income is not lower than California’s average, you will have to do some additional work if you still want to try to pursue a Chapter 7 filing.

You will have to begin gathering documentation of your income and expenses so that you can determine whether you have enough excess income at hand to make a dent in some of your debts. Depending on how much “disposable income” the test reveals you have, you may or may not be able to file for a Chapter 7 bankruptcy. If not, you may still have other options at your disposal. Find more about bankruptcy on our web site.


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