To do the means test the consumer must average his/her income over the last six months before filing of the bankruptcy petition. Income includes wages, interests, revenue from the operation of a business etc. The next step is to compare the income with California’s median income. If the annual income is lower than California’s median income the consumer does not have to pass the rest of the means test. If however the income exceeds the median income the consumer must take the full means test. Up to date median income figures are published at the U.S. Trustee’s website at www.usdoj.gov/ust. In a nutshell a consumer who can show that his/her allowed expenses exceed his/her current monthly income still passes the means test and qualifies for chapter seven bankruptcy. However if after adding up all allowed expenses the consumer has disposable income left at the end of the month it is presumed that the consumer is able to pay back all or part of the debt to creditors in a chapter thirteen bankruptcies. However one way to avoid having to pay back any unsecured debt is to show that the consumer’s monthly disposable income multiplied by sixty is not equal or does not exceed twenty-five percent (25%) of the consumer’s unsecured debt. What constitutes income and what is an allowable expense varies to a certain degree from district to district and even from one judge to the other. It is important to know the local rules and the controlling court decisions to maneuver your way through and to avoid dismissal of your case.

Income Guidelines

Income means the average monthly income you had over the six months preceding the filing of bankruptcy. Income is the gross earnings before taxes are being taken out. It includes almost all types of taxable and non-taxable income. You arrive at your income by adding up the income you received over the last six months and dividing the total by the six.

Income includes the following:

1. salary, wages, commissions, bonuses
2. gross income from a business
3. regular payments to you or to your dependents
4. workers’ compensation insurance
5. state disability insurance
6. rent, leases
7. retirement incomem
8. windfall payments e.g. lottery winnings
9. unemployment compensation

Unemployment Compensation

You can claim that unemployment compensation falls under the Social Security Act and as such is not regarded as income in a bankruptcy. Ask a bankruptcy lawyer for advice if you receive unemployment compensation.

Median Income

Each state in the United States has its own median income guidelines. You can find the most current figures for California under www.usdoj.gov/ust under Means Test information. If your monthly income is under California’s median income for the size of your family a chapter 7 bankruptcy will be possible. If your income is over the median income the full means test must be taken which takes into account your income and expenses.

Unsecured Debt

Unsecured debts are debts that are not have any collateral such as a house or a car which in case of default could be taken by the creditor. Typical unsecured debts are credit card debt, medical bills, cash advances or personal loans.