If you’re struggling to pay your bills, falling behind on credit cards, or facing constant calls from debt collectors, Chapter 7 bankruptcy could offer you a fresh start. Chapter 7 is the most common form of consumer bankruptcy and is often called liquidation bankruptcy because it can wipe out many unsecured debts. But not everyone qualifies.
Chapter 7 Means Test
The means test is the gatekeeper for Chapter 7 bankruptcy—and it’s where many people’s eligibility rises or falls. The court wants to know whether you truly can’t repay your debts or whether you’re trying to wipe them out when you actually could afford to pay something back through Chapter 13.
The first part of the means test compares your household income to the state’s median income. This number changes over time and depends on your household size. For example, the median income for a single filer is lower than for a household of four. If you’re below that median, you pass automatically—no need to complete the rest of the test. But if you’re above it, things get more complicated.
The second part of the test digs deeper into your finances. You’ll subtract specific allowable expenses—things like rent or mortgage, groceries, health insurance, and childcare—from your total income.
The test isn’t just about your personal budget; it uses IRS national and local standards to calculate reasonable expenses. So even if you’re spending more in certain areas (like a high-end car lease), you might not get full credit for those expenses. However, the means test favors those who have mortgage payments and car payments as one can deduct the full amount of these payments against their income.
If, after all deductions, you still have enough disposable income to repay a portion of your unsecured debts, the court may conclude that you’re not eligible for Chapter 7. Instead, you’d likely need to file under Chapter 13, where you repay part of your debt over three to five years.
Your Debts and Assets
Passing the means test doesn’t automatically mean all your financial problems disappear. Chapter 7 has limits on what debts it can discharge—and it’s important to understand what’s covered and what isn’t.
Chapter 7 is powerful when it comes to unsecured debts.
This includes things like:
- Credit card balances
- Medical bills
- Personal loans without collateral
- Utility bills and overdue rent
- Some civil judgments (like from car accidents without insurance)
However, some debts survive Chapter 7 no matter what. You can’t discharge child support, alimony, certain taxes, government fines, court-ordered restitution, or most student loans. Even within the student loan category, you’d need to prove undue hardship, which is a high legal bar that most courts rarely grant.
Another key piece is your assets—what you own. While Chapter 7 is often called liquidation bankruptcy, in practice, many people don’t lose anything because California’s generous exemption rules protect much of your property.
Some of the key exemptions include:
- Equity in your primary home (with limits)
- A personal vehicle up to a certain value
- Retirement accounts, like 401(k)s and IRAs
- Household goods, clothing, appliances, and furniture
- Tools of the trade (if you need them for work)
However, if you own non-exempt property—such as valuable jewelry, vacation homes, or extra vehicles—the bankruptcy trustee has the right to sell those items to repay creditors. This is why careful pre-bankruptcy planning matters. Without it, you could unintentionally put assets at risk that you could have protected.
It’s also worth noting that some people with large assets, even if they pass the means test, might consider alternatives to Chapter 7. In some cases, negotiating settlements or pursuing Chapter 13 could allow you to retain property that Chapter 7 would liquidate.
Restrictions and Limitations
Even if you pass the means test and have eligible debts, you still need to clear a few more eligibility hurdles. Prior bankruptcies and certain legal restrictions can disqualify you from Chapter 7—or at least make you wait before you can file again.
Here’s the key timeline:
- If you previously filed Chapter 7 and received a discharge, you must wait eight years from the previous filing date before you can file Chapter 7 again.
- If you previously filed Chapter 13 and received a discharge, you must wait six years before filing Chapter 7—unless you repaid at least 70% of your unsecured debts in the prior case.
- If your previous bankruptcy was dismissed within the last 180 days because you violated a court order or voluntarily dismissed the case after creditors sought relief from the automatic stay, you’re barred from filing again during that window.
The bankruptcy court also pays close attention to timing and intent. If you ran up debt just before filing—such as making luxury purchases or taking large cash advances—the court might refuse to discharge those debts on grounds of fraud. Similarly, if you try to hide assets or transfer them to friends or relatives before filing, you risk not only losing your discharge but also face legal consequences such as the trustee filing a lawsuit against your friends or relatives to undo the transfer.
In other words, Chapter 7 is designed for honest filers seeking a fresh start—not for people trying to dodge responsibility or game the system. Judges and trustees are trained to spot suspicious patterns, and you’ll be required to disclose your financial history in detail.
If you’ve filed bankruptcy before or if your finances involve complicated circumstances, working with a seasoned bankruptcy attorney is crucial. They can help you navigate these restrictions, avoid costly mistakes, and determine whether Chapter 7 is truly available, or if you need to look at other options.
Don’t Face Bankruptcy Alone
Filing for Chapter 7 bankruptcy is a big decision, but you don’t have to figure it out alone. At Janus Law, we help individuals and families across California understand their options and move forward with confidence.
We’ll take the time to assess your eligibility, walk you through the means test, and explain what assets you can protect under California law. If Chapter 7 isn’t the right fit, we’ll help you explore other solutions—whether that’s Chapter 13, debt settlement, or negotiation with your creditors.
Don’t wait until the pressure becomes unbearable. Reach out to Janus Law now for a consultation and take the first step toward a clean financial slate.
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