The bankruptcy means test numbers for California are out, and again higher incomes still escape the means test.
In the Bay Area, the means test income levels, coupled with the cost of housing, don’t keep many people out of the bankruptcy chapter of their choice. More.
Why the means test matters
The median income in your state is the starting point for bankruptcy’s means test.
Below median, and it’s a given you qualify for the bankruptcy chapter of your choice. Above median, more calculation is required to see whether you can opt for Chapter 7, if that’s your choice.
So, we have new numbers for bankruptcy cases filed on or after April 1 2023.
The new median income numbers won’t create the same stir as the Powerball jackpot, but they are the starting place for people in need of relief from bills they can’t pay.
The means test divides debtors (the people who need debt relief) into two groups.
- Those below the median state income get to file bankruptcy, no questions asked.
- Those above the median income have to jump through another hoop, the means test, to determine if a government watchdog will claim their filing is “abusive”.
People above the median still get to file bankruptcy. The means test just influences which chapters are available and what the debtor has to pay if they elect Chapter 13.
In our experience, a high percentage of people over the median income still qualify for Chapter 7 after they calculate their living expenses.
Bay Area median income
The means test looks at the median income by family size. The median for families in San Mateo, Santa Clara, Alameda, and Santa Cruz counties is
- $75,235 for a family of one
- $93,175 for a family of two
- $104,785 for a family of three
- $122,707 for a family of four
For families larger than four, the median is increased by $9000 for each member above four.
While the median income figures are the same for all Bay Area counties, the deduction allowed for housing varies from county to county. This table shows county by county how much a California debtor can deduct from their income for the cost of housing a family of their size.
If you are above median
Lots of people above the median income pass the second part of the means test with flying colors.
The means test is just another form to fill out. As I explained in another means test post, the high cost of housing in the Bay Area makes it relatively easy to pass the test.
All Congress managed to do by imposing a means test on bankruptcy is to drive up the cost to debtors for filling out a tedious form.
Cheat sheet for passing the means test
Figuring what you pay in Chapter 13