Whether you qualify or not to file bankruptcy is dictated by a mechanical calculation created by the court to determine your ability to pay back their debt.

As you read on you will learn that this a complicated and confusing qualification process. We HIGHLY recommend that you meet with a bankruptcy professional in person to discuss your particular situation. Contact us online or call us at 858-549-8600 to set up for FREE bankruptcy consultation solutions with San Diego Attorney Gary Quackenbush and his staff. We’ve been helping people like to to get out from under overwhelming debt and to get back on their feet through filing bankruptcy since 1988 and would love to help you.

In 2005 the Federal Bankruptcy Code was revamped; creditors lobbied congress very hard to try and make it more difficult for people to qualify to completely eliminate their debts in Bankruptcy. Congress passed what was called BAPCA (Bankruptcy Abuse and Consumer Protection Act), which produced what is referred to as the “Bankruptcy Means Test”; the calculation that is used to answer the question “Can I File Bankruptcy?”.

In summary, the test looks at an average of the applicants gross monthly household income for six months prior to filing, then deducts some of the applicants real expenses, and many others that are pre-determined by the IRS standard allowances. At the conclusion of the test, if the applicant is negative, or in other words has more expenses than income without accounting for unsecured debt payments, they qualify for a Chapter 7 to eliminate all of their unsecured debts. If the result of the “Means Test” calculation is positive, or in other words if the calculation shows that after all expenses are accounted for there is remaining disposable income, then the applicant will only qualify to file a Chapter 13 Bankruptcy and be required to make payments of the amount disposable each month for three to five years (term depending on other factors of the test).

Another issue to consider in discussing Bankruptcy qualification is the debtor’s assets. Although it is income that dictates qualification for Chapter 7 Bankruptcy, there is only so much value in assets that can be protected or “exempted” in a Chapter 7, while concurrently eliminating unsecured debts. There are two sets of exemption laws that can be used to protect a debtor’s assets in a Chapter 7: California Civil Procedure Code 703 and California Procedure Code 704. Debtors can only use one or the other when filing a Chapter 7.

The former is referred to as a “wildcard” exemption, which provides for the protection of approximately $24,000 in miscellaneous assets. 703 also provides for the protection of some additional assets such as motor vehicles, household goods, etc., however they are less than generous in amounts allowed. Qualified ERIZA retirement accounts, however, can be generously protected up to approximately $1,000,000 when using either CCPC 703 or CCPC 704 in a Chapter 7. 704 is referred to as the “Homestead Exemption”, and depending on the debtor’s age, can protect up to $175,000 in equity in the debtor’s primary residence. When using 704, however, the remaining exemption amounts for vehicles and other assets are extremely limited. It is important to consider that an applicant can voluntarily enter into a Chapter 7 Bankruptcy, however they cannot voluntarily exit. Therefore, it is extremely critical that an experienced attorney determines whether a debtor’s assets can be protected, or “exempted”  in a Chapter 7 prior to the case being filed.

NOTICE:  

This article provides general information about California law. The laws are constantly changing and this article is not intended to provide legal advice about your specific situation. Seek competent legal counsel. Let me advise you about your particular situation.

Gary A. Quackenbush, Esq.