Understand the California Bankruptcy Means Test By Understanding Its Purpose

Posted by on Aug 26, 2011 in Means Test in Bankruptcy Cases | 2 comments

Sometimes bankruptcy practitioners explain the California bankruptcy means test to potential clients as if it is a form of incomprehensible rocket science.   At JCH Law Firm, we believe in straight talk and want you to understand the basic fundamental concepts of what the means test is and how California bankruptcy law applies to you.

The California Bankruptcy means test only applies in consumer cases where debts are primarily consumer debts, not business debts.  The California bankruptcy means test is a formulaic calculation that determines whether someone considering a bankruptcy earns too much money to file for chapter 7.  There is also a similar version of the California Bankruptcy means test in chapter 13 cases that preliminarily calculates applicable monthly disposable income before other factors are considered for repayment purposes in chapter 13 cases.  The chapter 7 means test is found in Bankruptcy Official Form 22.

The chapter 7 means test spans several pages but the purpose behind it can be explained succinctly.  The California Bankruptcy means test calculates a debtor’s projected yearly and monthly gross income in a specific manner by using only the last 6 months of historical income.   For those individuals who earned above what the Census Bureau has indicated is the median household income for the state, that individual must complete the entire means test calculation.   In essence, the california Bankruptcy means test takes a debtor’s projected gross income, backs out (1) reasonable and necessary expenses that are pre-determined per IRS standards, and (2) other statutorily pre-determined allowable expenses that are specific to a debtor, to determine whether the debtor has enough disposable income left over to fund a chapter 13 repayment plan.

In practice, the California Bankruptcy means test is more complex and involved in its application than what has been written above.  But the fundamental purpose behind the California Bankruptcy means test is clear.  Once a debtor understands its purpose, the means test becomes a comprehensible hurdle to overcome rather than an impossibly complex math theorem that cannot be proven.  Fortunately, most people who file chapter 7 bankruptcy earn below the median income per their household size.  For those that do earn more or believe they have means test issues, contact us as we have extensive experience with California Bankruptcy means test cases in both a chapter 7 and chapter 13 context.  You can also us at 1-800-371-5523 or email us at info@jchfirm.com.   We help everyone with bankruptcy from Central California down to San Diego and everywhere inbetween.

 

 

2 Responses to “Understand the California Bankruptcy Means Test By Understanding Its Purpose”

  1. Thanks for explaining it this way. It makes more sense to me now.

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