Qualifying for 7 or 13 depends on allowable deductions from gross income. Gross income is income from any and all sources. Determining gross income is simple. You just add all income from everywhere. But arriving at net disposable income is can be tricky. In California, bankruptcy courts are not yet unanimous in their interpretation of what can be deducted particularly in the matter of vehicle ownership and secured debt expenses. Indeed, even across the country, there is no common thread yet at this time. Let’s just say that it helps if you know how the Judge assigned to your case treats the expense, and how the U.S. Trustee in your area looks at the expense.

This is how the problem comes up. Let’s say you own a house with a mortgage of $3,000. You decide to abandon the house and rent a house for $1,500. The bank has not foreclosed on the house so you still own it. You file for Chapter 7 bankruptcy because you owe $100,000 of credit card debt and hospital bills of $200,000. Your gross income is $7,000 a month with total allowed monthly expenses and deductions under the means test of $4,000 before you deduct your housing expense. Now is where the fork in the road appears. At this point you have $3,000 of disposable income left which will be erased by your mortgage of $3,000. So, if you can deduct your mortgage of $3,000 because you still own the house even if you have abandoned it and moved to a rental, you will qualify for Chapter 7 and wipe out $100,000 of credit card debt and $200,000 of hospital bills. You are debt free. But if you can only deduct $1,500 for your rent because you have left your house and now only pay rent, you actually have $1,500 of disposable income qualifying you for Chapter 13 paying $1,500 monthly for 5 years.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.