Median Income Limits to Nail the Bankruptcy Means Test: New for 2023
The government just updated the numbers for 2023 median income limits. Using median household income, it again got easier to qualify for bankruptcy Chapter 7, because of another means test adjustment. And while bankruptcy may seem to be “just forms,” make sure you check out my list of 12 crucial tips to do or avoid before filing bankruptcy.
The means test for bankruptcy decides who qualifies for Chapter 7 bankruptcy eligibility. The first step of this process is comparing your median household income against the California median income limits set by the Department Of Justice guidelines to see if you earn less than bankruptcy median income limits.
Again, this comparison against the median income is merely the first step, and does not absolutely determine your eligibility for Chapter 7 or not.
Nov 2022 Update: The numbers for the means test adjusted November 1, 2022, and will be used for the first part of 2023.
Because of the above statement, these will be the first 2023 median income limits.
The means test limits adjusts over time. So, someone may not qualify according to the bankruptcy means test in one month but after the changes they do, or vice-verse. The last updates were in November 2022 . Below are the November 2022 bankruptcy median income figures to determine who can file Chapter 7 bankruptcy.
Means Test: 2023 Median Income Adjustments
Every now and then, the government updates the bankruptcy median income limits. They last did it in Nov 2022. Good news: the California 2023 median income numbers are now even higher, increasing household income for bankruptcy means test qualifying. This means that more people could qualify for Chapter 7 bankruptcy using the California median income numbers below.
2023 Median Income for California Households
Because the California median income changes maybe once or twice a year, these recent changes last 2022 will be the first numbers used for 2023 median income. You’ll see below there’s talk about household size. Notice also that larger families also get a break, as the amount for each additional member after 4 increases another $9,900. This is helpful for households of five people or more.
What is Median Household Income: Roommates and Spouses
When reviewing median household income, we start splitting hairs, since not every home is a traditional household. So, things start getting kind of cloudy on what is or isn’t a household. It isn’t always clear who counts in a household.
Note that if you’re married in California, there’s a community property presumption that your spouse’s income is yours also. So add that, and them, to your household figures. Yes, you can file bankruptcy without your spouse. However, their income, assets, debts, and everything else of theirs still comes into your bankruptcy. Why? California is a community property state. Read more for a deeper dive in my article about spouses and filing bankruptcy.
There may be a difference if you have a roommate who pays rent. What if you’re married? Separated? Or have kids but they’re adults. Do you live with your significant other, who has their own finances? Would the answer be different if you had kids together, but weren’t married? Maybe they’d all be considered by the government to be in your household. Or, maybe they’re not.
You can see this is isn’t as simple as it may at first seem. Contact me and set up a Zoom to talk about it.
But below are the California median income limits for the various household sizes.
California household size and California median income for Bankruptcy
- 1-person household: $69,660
- 2-person household: $86,271
- 3-person household: $97,021
- 4-person household: $113,615
- Each additional person: $9,900
These are the California median income numbers effective November 1, 2022. If it’s 2023 or you’re looking for the median household income for a different state, please review the DOJ link above.
Read Our Means Test Guide.
California Means Test Calculator for Chapter 7
Many of you have asked about a Means Test Calculator for Chapter 7. So, I put together the following Chapter 7 means test calculator. For other states, there many be others elsewhere on the internet, this won’t apply. This means test calculator for Chapter 7 bankruptcy is just for California.
Also, this is not intended to give advice or definitively say you qualify for Chapter 7 or not. The actual means test is many pages long, and it’s possible to qualify if your income is over the median. Similarly, it’s also possible to be ineligible for Chapter 7 even though your household income is under the median income. Reducing it to one box is like a cheap parlor game, and you should kind of think of this that way.
But notice how, after you input your income, how changing the household size affects the bottom line. As bankruptcy attorneys, this is something we have to be very mindful about and argue for our clients: the appropriate household size based on the unique circumstances of our clients.
With that being said, here’s my very crude 2022-2023 Means Test Calculator for Chapter 7 for California, which you should take with a massive grain of salt:
Wait! Can you file bankruptcy if your household income is over the median?
If you’re over the bankruptcy median, there’s still hope
Yes. The means test and 2023 median income isn’t the “end all be all.” The above/below median part is just a starting point. A person can still file Chapter 7 bankruptcy, in some cases, even if they earn more than the median income. The bankruptcy means test would just need to be filled out completely. It’s still possible to qualify.
Over the years, this Los Angeles bankruptcy attorney has helped people who earn over the California median income limits still qualify for Chapter 7. In one case, we even helped a family whose annual income was almost double the median household income. They were earning around $150,000 a year, and we helped them get a Chapter 7 discharge (your mileage may vary). However, even if someone isn’t eligible, debt consolidation is still a solution in Chapter 13 bankruptcy.
Being Under the Bankruptcy Median Income Doesn’t Guarantee Success
On the other hand, just because someone is earning less than the California median income, it’s possible that they’re not eligible for Chapter 7 bankruptcy. Bankruptcy is all about whether someone can afford to repay their debt or not, and the means test is just one factor.
Note: the median income numbers are not to be confused with the Los Angeles County median home price figures, and each has a different place in evaluating Chapter 7.
Finally, as the economy is always changing, so does California median household income. We don’t know the next time changes to the median income limits will happen again. So, be sure to check before relying on these California median income limits in the future.