You should always decide to file for bankruptcy with the guidance and counsel of an experienced bankruptcy attorney. Your attorney can also advise you about the right type of bankruptcy for your situation, and most – but not all – consumers file under Chapter 7 of the United States Bankruptcy Code. However, once you decide you want to pursue a Chapter 7 case, there are some requirements to meet to be eligible to do so.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced the requirement that Chapter 7 filers pass the “means test” prior to filing. You can pass this test if your income is deemed to be below the median income for your state and your household size. This is to ensure that you do not have the income needed to pay your debts.
The Department of Justice reports the state-by-state median income each year for purposes of the means test. For example, the following are the reports for California in 2019:
You will need to report all sources of income, and your attorney might use qualified expenses to offset some of your income if needed. If you do not pass the means test, you might want to discuss the possibility of Chapter 13 bankruptcy with your attorney.
BAPCPA also changed the residency requirement for Chapter 7 bankruptcy – specifically, which state’s bankruptcy laws apply to your case. If you file for bankruptcy in California, you are not necessarily entitled to use California bankruptcy laws unless you meet the residency requirement. This is important because each state has different exemptions to protect your property, and only some states allow you to choose between state and federal exemptions (California does not).
To know how you will be able to protect your property, look at where you have lived for the past 730 days (two years). If you lived in California for the past two years, you meet the requirement, and you can use California exemptions. If you have not lived in California for two years, you will look to where you lived for the six months prior to those two years.
For example, if you moved to California one year ago, but you lived in Wisconsin for five years before you moved, you will use Wisconsin exemptions. However, if you only lived in Wisconsin for one year, you will use the state exemptions where you lived prior to Wisconsin. It can be confusing, and you may need an attorney to help determine whether you meet the residency requirement in California.
The bankruptcy attorneys at the law firm of Miranda, Magden & Miranda, LLP, handles Chapter 7 bankruptcy cases for clients who find the financial relief they need. If you would like to discuss a possible bankruptcy case, please do not wait to contact us for a consultation about your options today.
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