Am I Eligible to File Bankruptcy?

The first thing you have to determine is if you are even eligible to file for bankruptcy, and if so, which chapter.

Finding out if you are eligible for bankruptcy can be tricky. You also want to make sure you file bankruptcy at the right time. An experienced bankruptcy lawyer in Oakland can help you find out if you can file bankruptcy.

Bankruptcy Credit Counseling

The first step in filing bankruptcy is to get your credit counseling certificate. You get this certificate from completing a course from a credit counseling agency that has been approved by the US trustee’s office. The purpose of this counseling is to see if there is anyway you can pay back your debts without filing bankruptcy. Even if it is obvious you have to file for bankruptcy, the court still requires credit counseling.

Calculating your Current Monthly Income

The next step is to calculate your current monthly income (CMI) to find out if your income is above California’s median income. When you file bankruptcy your current monthly income is determined by taking your gross monthly income and comparing that number to the average median income for your family size for the state you live in. This number is calculated by averaging the last six months’ worth of income prior to your filing date. For example, if you file bankruptcy on July 10 your CMI would be determined by averaging your income from the beginning of January through the end of June.

For current California median income levels you can visit the US Trustee’s website.

If your Income is Less Than the Median Income for California

If your income is equal to or less than the Median income for California then you can file a chapter 7 bankruptcy. You may also file a chapter 13 bankruptcy and propose a plan with your actual expenses that only last for 3 years.

If your Income is above California’s Median Income

There are different consequences if your income is above the median state income depending on the different chapter of bankruptcy you are looking to file.

Chapter 7: If your debt is mostly consumer debt (i.e. credit cards, medical bills, personal loans, car loans) you will have to take what is called the “means test” to find out if you are eligible for a chapter 7. The means test uses your CMI (above) to determine if you have money left over after your expenses to pay creditors. If you can’t pass the means test then that means the means test has determined you have income to pay your debt after your normal living expenses. However, you still may be eligible for a chapter 13 bankruptcy. The point of the means test in a chapter 7 is to find out if you have enough disposable income to pay off some of your creditors.

Chapter 13: In a Chapter 13 bankruptcy, if your income is above the median income than you must propose a five year chapter 13 plan.

If you Have too Much Debt

You may not be able to file a chapter 13 if you have too much debt. If you have more than about $1,149,000 in secured debt or more than $383,175 in unsecured debt you may not qualify for a chapter 13 bankruptcy.

If you Have too Many Assets

You may also not be eligible to discharge all of your debt if you have too many non-exempt assets. You may still qualify for a chapter 13, but be put in what is called a 100% plan where you pay back all of your debt.