A chapter 7 bankruptcy is a complete liquidation. The trustee, who is assigned to oversee the bankruptcy, will sell off the bankruptcy filers' assets and use the proceeds to pay back creditors. In California, there are laws referred to as exemptions. Exemptions are used to protect assets and, quite often, bankruptcy filers are able to protect all of their assets. However, no all bankruptcy filers are able to protect their assets and its important to talk specifics with a bankruptcy attorney in Sacramento. A chapter 7 bankruptcy only lasts approximately 90-120 days.
A chapter 13 bankruptcy is a payment plan. The payment period lasts anywhere from 3-5 years. A chapter 13 bankruptcy is typically for individuals who are behind on their mortgage payments or make too much money to qualify for a chapter 7 bankruptcy.
|FAMILY SIZE||1 EARNER||2 PEOPLE||3 PEOPLE||4 PEOPLE|
(Sum of Gross Wages for Six Months) / (Six Months) = (Average Monthly Gross Wages)
(Average Monthly Gross Wages) * (Twelve Months) = (Gross Annual Income)
The bankruptcy filer will compare their gross annual income with the medium income for California. For example, a married couple John and Suzy earn a joint annual gross income of $55,000. In California, the medium income for a household size of two is $79,271. John and Suzy would satisfy the bankruptcy means test. If, however, John and Suzy earn a joint annual gross income of $95,000, they would not longer satisfy the simple initial test. John and Suzy may still qualify for a chapter 7 bankruptcy, but they will need to provide more information on their expenses. Filing bankruptcy without spouse will not solve the problem if the bankruptcy filer is above the medium income.
Those who earn above the medium income need to demonstrate to the court that a chapter 7 bankruptcy is still the best option; otherwise, it'll be a repayment plan under chapter 13 bankruptcy. The second portion of the test considers reasonable and necessary expenses along with income. After the expenses, is there sufficient disposable income to make payments to creditors and pay the administrative expenses of a chapter 13? If so, chapter 13 bankruptcy might be the only option.