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Bankruptcy Means Test in California

Los Angeles Bankruptcy Attorney

If you are considering filing for bankruptcy, you have probably heard something about passing a means test in order to be able to file.

In October of 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. A key part of this Act was the implementation of the means test, which was established in order to distinguish debtors who have the "means" to file for bankruptcy and complete a  Chapter 13 repayment plan rather than seek debt relief under  Chapter 7 bankruptcy. Chapter 7 bankruptcy involves the liquidation of  property to repay a portion or all of the debtor's unsecured debt. Chapter 13 bankruptcy involves the repayment of part or all of the debtor's unsecured debt. By creating and enforcing the means test, debtors who made enough money and had enough disposable income to make payments through a Chapter 13 repayment plan were restricted from filing a Chapter 7 bankruptcy.

How Does the Means Test Work?

The means test consists of two main parts. The first is an assessment of the level of income the debtor earns. By comparing this against the current median income for the state, it will be determined whether the debtor will pass this part of the test. If the debtor makes less than the median income level, he or she will qualify for a Chapter 7 bankruptcy. If the debtor makes more than the median income level, the second step of the means test will begin. The second part of the means test is an evaluation of the debtor's income against his or her necessary expenses, excluding payments being made on unsecured debt. Depending on this level of "disposable income" a debtor may or may not qualify for a Chapter 7 bankruptcy.

Find out more about the means test and how it may affect you. Contact a Los Angeles bankruptcy lawyer at our law firm for a free consultation regarding your case.