The bankruptcy means test essentially determines whether a person can file Chapter 7 or must file under a different chapter of the bankruptcy code, such as Chapter 13 or Chapter 11. Individuals whose income is low enough may file Chapter 7, but those who fail the means test must file Chapter 13 or Chapter 11 to repay a portion or all of their debts.
The means test was implemented to limit the number of Chapter 7 filings to individuals who simply and truly cannot pay their debts. It is based on your level of income in relation to the median (average) income in California. If your income level is below the state average, you may file Chapter 7. If your income level is above the state average, the calculation becomes more complex, but you may still be able to file.
It is important to note that you should consult an attorney who focuses on bankruptcy before doing any of the following:
- Short sell your residence to prevent foreclosure
- Return an automobile to prevent repossession
- Spend any of your retirement funds to pay your creditors
Whatever the outcome of your means test, it is prudent to consult a bankruptcy professional to help you determine the best course of action.