Qualifying For Bankruptcy

CHAPTER 7

Chapter 7 Bankruptcy is the type of bankruptcy that will discharge most, if not all of ones debts without any payment plan. One files the petition and usually, in about 3 months a discharge is granted. The person can then go on with his or her life and begin to re-establish credit. But, in order to file and obtain this discharge, one must meet the standards required by what the law calls, "The Means Test," and the "Totality of Circumstances Test". There are two types of means tests.

MEANS TEST A:

If one meets the criteria of "Means Test A", then they qualify to file a Chapter 7 Bankruptcy without any further analysis being required. In order to qualify for "Means Test A" the debtor must demonstrate that either:

1. For the last 6 months, he or she has had income at or below the State Median (see chart below), OR

2. His or Her debts are primarily business debts.

Median Income for California families*:

FAMILY SIZE:	One Person	Two Persons	Three Persons	Four Persons	Five Persons	Six Persons	Seven Persons	Eight Persons	Nine Persons
MEDIUM INCOME:	$47,363	$62,690	$68,070	$77,014	$83,914	$90,804	$97,714	$104,614	$111,514

*(As of January 1, 2009, according to the U.S. Department of Justice)

MEANS TEST B:

Even if the debtor does not meet the requirements of "Means Test A" (because his or her income is too high), he or she may still be able to qualify for a Chapter 7 Bankruptcy under what is commonly referred to as "Means Test B." Under this test, the costs of the debtor's food, clothing, health care, housing, utilities and transportation are considered. If after taking into consideration all these costs, it is determined the debtor will not have enough income to make monthly payments into a Chapter 13 Plan, then the debtor will qualify for a Chapter 7 Bankruptcy.

TOTALITY OF THE CIRCUMSTANCES TEST:

This test is just like it sounds. The court may consider the totality of a debtor's financial situation to determine if a debtor qualifies for a Chapter 7 Bankruptcy. For example, even though a debtor has had income below the median for the last 6 months, if he just got a job paying him three times what he made before, the court may find that the debtor can afford to pay at least a portion of his debts and therefore should not qualify for a Chapter 7 Bankruptcy.

OTHER REQUIREMENTS:

Special rules apply if you filed for a bankruptcy in the last 180 days and the case was dismissed; you may or may not qualify.

You must take a credit counseling course (available on the internet and takes about 1.5 hours to complete).

WHAT DOES IT TAKE TO QUALIFY FOR A CHAPTER 13 BANKRUPTCY IN CALIFORNIA?

CHAPTER 13

Chapter 13 Bankruptcy is the type of bankruptcy where a debtor is required to pay back a percentage of his or her debts usually through a 3 to 5 year plan. The percentage the debtor pays depends on his or her income and the value of his or her assets. The percentage can be any number between 0% and 100%.

To qualify for a Chapter 13 Bankruptcy, the Debtor need not meet the means test. But, the higher the debtor is above the means test, the more money the debtor will usually be required to pay into a Chapter 13 Plan. However, even if the debtor is required to pay back 100% of his debt, this amount can be spread over 5 years without interest (except for trustee fees), thus providing the debtor substantial relief.

QUALIFYING CRITERION:

In order for you to qualify for a Chapter 13 bankruptcy:

1. You must have regular income (for example, a job, a business, or retirement benefits).

2. You and your spouse (if any) do not have combined unsecured debt (like medical bills and credit cards) that exceeds $336,000 and you and your spouse do not have combined secured debt (like cars and your house) that exceeds $ 1,010,650.

3. You have taken a credit counseling course (available on the internet and takes about 1.5 hour).

4. You have not had a prior bankruptcy dismissed within 180 days (although there are several exceptions which may apply)..

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