Today's Topic

If you want to file a chapter 7, you must either:

• have a monthly income (for the last year) that is less than your state’s median income for your family size, or

•  pass a means test based on a combination of your monthly expenses, and the average monthly expenses in your area (there is a table that provides this information); or

• be a disabled veteran, a reservist, or a member of the National Guard (if you are in this category, you automatically qualify and you don’t need to read any further).

The first thing to do is check the median income for your state with this link:  Median Income. At the bottom of Section I (Median Income), click on the download link, then find your state of residence and go to the column for the number of people in your household. Multiply your monthly gross income (for both spouses if you both work) by 12. If the total is less than the median income that applies to you, you are eligible to file a chapter 7.

By way of example, the median income for a family of four in California is $123,451. If your household income is less than that amount, you qualify for chapter 7 and you don’t need to go to the next step (and you don’t need to read any further).

If your household income is more than that amount, you must take (and pass) the means test. You can find the information for this part of the test below, but if you must take this test, you should seriously consider seeking an attorney’s help. The test is technical, complex, and a mistake can make the difference between filing a chapter 7 and having to file a chapter 13.

If you want to try and do it yourself, go to the Bankruptcy Court website for your locale, find the Forms section, and print out a copy of Form 122A-2. Read it carefully and fill it out. Go to the page (on the website) where you found the median income. In Section II, you’ll find the national average information for Food, Clothing and Other Items (#2), Health Care (#3), Housing and Utilities (#4a), Transportation (#4b). Follow the instructions in Part 4 of the form carefully to determine if there is a presumption of abuse in your case. If there isn’t, you’re good to go.

If there is a presumption of abuse, and you still want to file a chapter 7 instead of a chapter 13, you should consult an attorney. There may be adjustments that can be made, including exceptions for certain expenses, or you may not have filled it out correctly (the likely case).

And if you’re hopelessly confused, either consult a local attorney, or go to my website (bankruptcysage.com) and contact me for a free consultation.

Tip of the Week: if you are concerned about keeping your car, go to one of the online sites like Car Max and determine the value (use average condition). If you owe more than it’s worth, you can keep it and continue making payments, or surrender it and discharge whatever is left owing. If it’s worth more than you owe, your equity may be exempt under your state law (next week’s subject). In either case, keep making payments. Don’t reaffirm the loan if you can avoid it. If you do reaffirm the loan, it’s like starting over and you will owe the full amount no matter what happens to the car.

Next week we’ll go over exemptions, what they are and where to find the ones that apply in your state.

Earlier Bankruptcy Basics Newsletters can be found on my website, bankruptcysage.com.

The information in this newsletter is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.