The first question is whether your debts are “primarily consumer debts”.   It’s easiest to total your non consumer debts, and compare them to the total of all debts you owe including your mortgage balance, if any.  Taxes and business debts are non consumer debts; if your total obligation on taxes and business debts is more than half of your debt, the means test does not apply to you.

If the means test applies to you, we need to figure out your “current montly income” or CMI.  This “income” may not really be your income today, but it is the number Congress says we use to determine whether you can file Chapter 7 of if you file Chapter 13, the minimum you have to pay in Chapter 13.

To make this all important calculation, we need to know what your income (and that of your spouse) has been for the last full six months.  We will need proof of wages; governmental benefits; interest income; support; and business income and expenses.  We may have to provide this proof to the trustee to verify the summary we file with the court.  We need to know how many people live in your home and share living expenses and how many people you support who live there for some part of the year.

If that income is over the median income for California families of your size, we will need more information about your debts and your actual expenses for food, medical care, home heating, etc.  We will do some more calculating to see if you could pay your living expenses, taxes and secured debt, and have enough left over to pay a minimal Chatper 13 plan.

Your assets are the other central issue in choosing which chapter of bankruptcy to file.  The law allows you to set aside certain assets as exempt and to keep those assets even though you file bankruptcy.  For many people, everything they have is exempt.

In Chapter 7, if the debtor has assets that are not exempt, the trustee may sell those assets to pay creditors.  Often, the debtor gets to keep non exempt assets because the value that the trustee could realize from sale is small or the value uncertain.

In either of the reorganization chapters, 11 and 13, the debtor keeps his assets, and pays creditors from future income or other sources, such as the sale of some assets or a property refinance.

All individuals must get a “credit briefing” or credit counseling from an approved agency before filing bankruptcy.  Before you can get a bankruptcy discharge, you must complete a financial management class, again from an approved provider.

Your bankruptcy petition, schedules and statement of financial affairs are filed under penalty of perjury and must list all of your assets and all of your liabilities, in whatever form they are found.  For the purposes of the bankrupcty schedules, your property includes not only real estate, time shares, business interests and tangible assets like cars and jewelry, but also intangible things like the right to the payment of money (like tax refund or support) the right to sue someone, even if the suit has not been filed, stock options and rights in trusts.

Failure to disclose all of your assets can result in the court denying your discharge, making the listed debts forever non dischargeable, and in criminal prosecution.  If you have any questions about what must be listed, please ask us.  If you learn after your case is filed that you have a right to sue someone, tell us immediately; failure to do so may prevent you from recovering anything on your claim.

Filing bankruptcy seems like a monumental and scary step.  In reality, it provides immediate relief from collection efforts and an opportunity to restructure your financial life.  A university study showed that 1 in 7 American families would be better off if they filed bankruptcy.  Bankruptcy will not prevent you from getting credit or buying a house in the future.

This is an introduction to a complex area of laaw, that has been made more complex by the 2005 amendments to the Bankrupcty Code.  Pleas do not be afraid to ask questions and inform yourself by doing your own research.