When Congress revised the nation’s bankruptcy law in 2005, they introduced a means test to ensure that only individuals who are unable to pay their creditors are permitted to file Chapter 7 bankruptcies. The means test they came up with has two parts. The first part compares a bankruptcy filer’s income with the median income in the state where they live. Only individuals who earn more than the median income in the state where they live take the second part of the means test, which takes their expenses and deductions into account. California has a higher median income than most other states, but that does not mean Golden State residents with unmanageable financial situations are unable to pass the Chapter 7 means test.
Income
The results of a Chapter 7 means test are based on a bankruptcy filer’s total household income even if their spouse is not seeking debt relief. This figure is then compared to state median incomes taken from U.S. Census data. In 2022, the figures for California were:
- $69,660 for a one-person household
- $86,271 for a two-person household
- $97,021 for a three-person household
- $113,615 for a four-person household
- $123,515 for a five-person household
- $133,415 for a six-person household
- $143,315 for a seven-person household
- $153,215 for an eight-person household
- $163,115 for a nine-person household
Expenses
If your income is lower than the above figure corresponding to your household size, you qualify for a Chapter 7 bankruptcy and do not have to take the second part of the test. If you earn more, you will have to list your deductible expenses to determine your disposable income. This is the amount that you could use to pay your creditors. Allowable expenses include union dues, alimony and child support payments, life insurance premiums and child care expenses.
Most pass the means test
Most people who file Chapter 7 bankruptcies are in dire financial situations, which means they rarely have much disposable income. If you are finding it difficult to make ends meet, you should not worry too much about the Chapter 7 means test. This test was introduced to stop people taking advantage of the bankruptcy laws. It was not created to deny people the chance to escape from overwhelming debt.