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Who Qualifies for Chapter 7 Bankruptcy?

Sept. 1, 2020

Individuals who qualify for Chapter 7 bankruptcy can get a fresh start with discharge of eligible debts. Federal bankruptcy law establishes two tests to see if a person can file for this type of discharge.

Review the eligibility requirements for Chapter 7 bankruptcy in California.

Median Income Test

Individuals who have household income below the median in their county can file for Chapter 7 bankruptcy without taking the means test. Los Angeles County uses the following median income limits as of April 1, 2020:

  • $60,630 for a one-person household

  • $79,271 for a two-person household

  • $88,235 for a three-person household

  • $101,315 for a four-person household

Larger households should add $9,000 for each additional member. The court will average the household income for the past six months. That means that if someone does not currently qualify for Chapter 7, that person may be eligible if earnings decrease in subsequent months.

Means Test

Those who want to file for Chapter 7 bankruptcy but earn more than the median income in Los Angeles County must take the means test. The bankruptcy court trustee will review the person’s official income and expense statements. He or she will deduct certain allowable expenses. If the person has limited funds left over each month after those expenses, the court will allow a Chapter 7 filing. Otherwise, the individual can pursue a Chapter 13 filing, which involves a reorganization of eligible debts.

The Chapter 7 means test calculation can be quite complicated. Individuals struggling with debt may want to seek advice from a professional who has experience with the California bankruptcy process.