By: Jeena Cho

The Means Test was a new rule passed with the 2005 Bankruptcy Amendment requiring that all above median debtors complete and “pass” the test. It was supposed to prevent abuse of the bankruptcy system by making it more difficult for people to qualify and file Chapter 7 bankruptcy. The principal idea being if you make above the median income for your state, you should be required to repay some of your debt in a Chapter 13 bankruptcy.

For a single person without dependents (household of 1), the median income in California is $47,969. Everything is obviously much more expensive in the Bay Area and many people make much more than the median income. Now, you may be thinking to yourself, I make more than that so I have to file for Chapter 13 bankruptcy. Well, not always. If you make above the median income, it just means you will have to complete a long mathematical formula. If there is less than $195.43 left over at the end of the Means Test, technically, you qualify for Chapter 7 bankruptcy.

The Means Test, allows you to subtract certain actual expenses such as payments to secured property (home and cars), health insurance, health care expense, term life insurance, alimony, etc. Oftentimes, it is possible for above median income earners to qualify for Chapter 7 bankruptcy.

In certain situations, it may be more advantageous to file for a Chapter 13 bankruptcy. Common reasons are:

1. Make up arrearages or “catch-up” on behind payments on mortgage/cars
2. Reduce interest rate in cars
3. Stretch out car payments over 5 years
4. Repay tax debts
5. Strip a wholly unsecured second mortgage

If all of this seems confusing, it’s because it is! This is why it is so important to hire a bankruptcy attorney to review your individual situations. One thing’s for sure, the 2005 Amendment created a lot more work to file for bankruptcy, which unfortunately translates to higher attorney fees for those who can least afford it. For more information on how to choose the right San Francisco or Oakland bankruptcy attorney, click here.

If you would like to schedule an appointment with a San Francisco or Oakland Bankruptcy lawyer, please call us at (415) 963-4004.

Disclaimer: Unless you have a fee agreement with us, we do not represent you. The information contained in this article is informational in nature and is not a substitute for legal advice. If you would like an attorney to review your personal circumstances, please call a San Francisco or Oakland bankruptcy lawyer.