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Means Test

                                                            Means Test

The means test is primarily used in two instances in bankruptcy proceedings.

1. The most typical application of the means test is to determine if people qualify for a chapter 7 bankruptcy and this is determined by household earned income. Earned income (leaving out retirement income, social security, government assistance, borrowing from a 401k, etc.) for the entire household is added up. The household earned income is compared to the following chart showing the median household earned income for people in California. If the household earned income exceeds the California Median Earned Income for the number of people in the household, the people do not qualify for a chapter 7 bankruptcy.

1 person household
earned income

2 person household
earned income

3 person household
earned income

4 person household
earned income

$48,009

$62,970

$68,670

$78,869


To count the number of persons living in a household the bankruptcy court uses the same method as the U. S. Census. The U.S. Census counts the number of "heads on beds" for the persons who stay overnight. For instance, a son or daughter living in another county would not be counted. On the other hand, a niece from another county enrolled in a local school would be counted. Parents living with their adult children are counted.

HINTS : If one does not qualify for a chapter 7 bankruptcy, one could invite grandmother to move in. Make sure she practices good citizenship by registering to vote, updating her driver's license address, and getting a local library card. Her social security would not add to household earned income but, her presence would increase the "heads on beds" and consequently, the allowable amount of household earned income for a chapter 7 bankruptcy. Or how about inviting your sister's kids from Kansas for the summer to attend a light schedule of summer school while enjoying a California summer. To learn more about chapter 7 bankruptcy click Why Chapter 7.

2. The second most typical application of the means test in a bankruptcy is to determine the length of a chapter 13 bankruptcy. The same calculation and comparison is made as described above for a chapter 7 bankruptcy. The default term of a chapter 13 bankruptcy is 3 years. If the household income exceeds the California Median Income for the number of people in the household, the people do not qualify for a 3 year chapter 13 bankruptcy, they must complete a 5 year chapter 13 bankruptcy. To learn more about chapter 13 bankruptcy click Why Chapter 13.

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