The Means Test and the Right Time to File for Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the preferred type of bankruptcy for many California residents because it ultimately results in most types of debt being completely forgiven. But what keeps many debtors from filing for Chapter 7 bankruptcy is the means test. Under the means test, you must show the court that you qualify for Chapter 7 bankruptcy because your median household income is less than the average household income of a household of the same size in California, or you don’t have enough disposable income to pay your current debts. The timing of a bankruptcy filing can be crucial to pass the means test.

The Timing of the Means Test in California

First, it’s important to understand what constitutes income for the purposes of the means test. Basically, income is everything you make. It’s what you get from work, plus cash you receive from friends and family. Even child support and alimony count as income. A few of these occasional boosts in income that can make it harder to pass the means test include:

•        Money you’ve taken out of a 401k or IRA
•        An ex suddenly paying a large amount of back child support or alimony
•        A large cash Christmas or birthday gift from a relative
•        Gambling winnings
•        Disability or unemployment benefits

But the means test only counts income for the six months immediately preceding the bankruptcy filing, and it excludes income you receive from the calendar month of your filing.

This means that if you’ve only worked one job for the past year and your wages have remained steady during that period, when you file will have little effect on passing the means test. However, if you were paid a significantly different wage a few months before starting a new job, this can have a big impact on qualifying for Chapter 7 bankruptcy in California.

I f your previous job paid quite a bit more, you may need to wait several more months before you can pass the means test. But if you’ve just started a job with a higher salary, now might be the right time to file for Chapter 7 bankruptcy as the increased income could make it harder to qualify for Chapter 7 in the coming months. These are among several strategic concerns when filing for Chapter 7 bankruptcy that are best discussed with an experienced attorney.

Is It Time to File for Chapter 7 Bankruptcy?

If you have thousands of dollars in debt, and you’re struggling to make the minimum payments each month, then it may be time to file for bankruptcy. The Law Offices of Melanie Tavare of Oakland and Hayward can walk you through the process of understanding whether to file for either Chapter 7 or Chapter 13 bankruptcy. You can reach the Law Offices of Melanie Tavare on our website or by calling 510-255-4646.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.