Do I make too much money to file for bankruptcy in Sacramento, CA (means test)?

The prospect of filing for bankruptcy is a dreaded one, but for many, it’s a necessary step towards financial recovery. However, a common question that arises, especially among those well within the six-figure income bracket, is: “Do I make too much money to file for bankruptcy?”—a particularly relevant concern for those living in Sacramento, California where the cost of living is high. This article will discuss the intricacies of the ‘means test’, a determinant factor in declaring bankruptcy for those earning more than $100,000 annually.

With great income comes the potential for great debt. It might seem counterintuitive, but a higher income doesn’t necessarily shield you from financial issues. Filing for bankruptcy isn’t restricted to a specific income bracket; it primarily hinges on your ability to service your debts.

We’ll begin by understanding the ‘means test’. The means test is a procedure put in place by the U.S. Bankruptcy Code to ascertain the eligibility of a debtor filing for Chapter 7 or Chapter 13 bankruptcy. It assesses the debtor’s financial resources—taking into account your income, expenses, and the size of your family—to determine if you have the means to pay off your debts.

Here’s an overview of the two types of personal bankruptcy:

• Chapter 7 Bankruptcy involves liquidation of certain assets to repay your debts, and within a few months, most of your unsecured debts (like credit card debt, medical bills, etc.) could be completely wiped out.
• Chapter 13 Bankruptcy provides you with a three to five-year discounted payment plan to settle your debts in a way that you and creditors are satisfied with, while also allowing you to keep your assets.

The means test thus aims to prevent high-income earners from filing for Chapter 7 bankruptcy, which wards off most debts without requiring repayment. These high-income earners, if they pass the means test and have regular income, can still file for Chapter 13 bankruptcy, but they will be required to repay some or all of their debt based on their income over three to five years.

The means test is initiated by comparing your monthly income with the median income for a similar household size in California. If your income exceeds the median, further means testing takes place by accounting for pre-set and actual expenses to conclude whether you can afford to repay your debt. However, certain high-income earners, like the military and business debtors, are generally exempted from the means test.

But remember, if you’re in Sacramento and earn more than $100,000 annually, the means test isn’t the solitary factor determining your ability to file for bankruptcy. A comprehensive review of your financial situation by a knowledgeable attorney is pivotal.

At Liviakis Law Firm, we are committed to providing guidance and assisting you in understanding the complexities surrounding bankruptcy. The criteria surrounding the means test or determining when to file for bankruptcy isn’t something you should navigate alone. We’re here to provide the legal advice you need to help recover from your financial setback and move forward.

Bankruptcy laws exist for a reason—to provide a fresh start to those facing financial hardship. Even if you are a high-income earner in the Sacramento region earning more than $100,000 annually, bankruptcy may still be an option. It’s important to remember that the means test is not a pass/fail examination; it’s a formula designed to assess your ability to repay your debts. Turning to experienced legal professionals like a Sacramento Bankruptcy Attorney for assistance can be the first step in reclaiming your financial freedom.

For more information and to further discuss your situation, don’t hesitate to contact Liviakis Law Firm. We will guide you on your journey towards financial stability, examining every possible avenue for you to come out stronger on the other side of these challenging times.