When debt becomes overwhelming, it can affect every aspect of your life. The stress of constant creditor calls, the fears surrounding financial stress due to wage garnishment, and the strain on personal relationships can be a heavy burden. If you live in Orange, Irvine, or a nearby community in Southern California, pursuing financial relief often means exploring Chapter 7 bankruptcy.
A Chapter 7 filing aims to eliminate unsecured debts like credit card balances and medical bills, allowing you to start over, without the stress of bills you have no hope of paying off. However, before a bankruptcy court can grant this relief, it must determine if you qualify. This critical eligibility step is known as the Bankruptcy Means Test in 2025.
The means test ensures that Chapter 7, which does not require debt repayment, is available to those who have very little, if any, hope of paying off their creditors. If your income suggests you can repay a significant portion of your debt, the law presumes you should file Chapter 13 bankruptcy instead. Working through this test can be confusing and complex. For many who live in the Orange and Irvine areas, guidance from a professional, experienced bankruptcy attorney leads to a positive outcome.
Understanding the Chapter 7 Means Test: Step One
The means test is a two-step process. You must first compare your household income to the median income of your family size in California.
Calculating Your Current Monthly Income (CMI)
The court does not look at your income for the current month. Instead, the calculation requires you to look backward. You must calculate your average gross monthly income for six full months before filing your bankruptcy petition.
For example, if you file a petition in November 2025, you would calculate your average income from May 1 to October 31, 2025. This “Current Monthly Income,” or CMI, includes most sources of money you receive, such as wages, salary, business income, rent, interest, and even unemployment benefits.
Comparing CMI to California’s Median Income
Once you determine your CMI, the next step is to compare it to the median income for a household your size in California. The U.S. Trustee Program updates these median income figures periodically, which are critical to the first phase of the test.
If your household’s annualized income (your CMI multiplied by 12) is below the state median for your household size, you automatically pass the means test. You are then generally eligible to file for Chapter 7 bankruptcy based on income.
Here are the California median annual income figures for cases filed on or after May 15, 2025, which reflect the financial realities for Orange County residents:
- 1 Earner Household: $76,190
- 2 People Household: $99,936
- 3 People Household: $112,536
- 4 People Household: $130,845
If your income is below these amounts, the law presumes you are eligible for Chapter 7 relief, a welcome outcome for many individuals and families throughout Orange and Irvine.
The Means Test: Step Two (For Above-Median Income Filers)
What if your CMI is above the California median income for your household size? You are not automatically disqualified from Chapter 7. Instead, you move to the second and more complex part of the means test.
This part of the calculation determines if you have sufficient disposable income to repay a portion of your unsecured debts over a five-year period. You subtract a series of legally allowed monthly expenses from your CMI. These deductions include:
- IRS National Standards: Set amounts for necessary living expenses like food, clothing, and out-of-pocket healthcare.
- IRS Local Standards: Set amounts for housing and utilities based on where you live. For Orange County, the specific cost-of-living deductions are a significant factor.
- Actual Expenses: Certain actual, necessary expenses that may exceed the standardized allowances, such as court-ordered payments for child support or alimony, mandatory payroll deductions, and costs for the care of a disabled family member.
- Secured Debt Payments: Payments on secured loans, such as a mortgage on a home in Irvine or a car loan.
The Disposable Income Threshold
After subtracting all the allowed deductions, you have passed the means test if your remaining disposable income is below a certain threshold, which is currently less than $153.75 per month (or $9,225 over 60 months) to repay unsecured creditors. This is because the court agrees you do not have enough discretionary income to fund a Chapter 13 repayment plan.
If your calculated disposable income exceeds the threshold, the court presumes that filing Chapter 7 is an “abuse” of the bankruptcy system. In this case, you may need to file Chapter 13 or demonstrate “special circumstances” that negate the presumption of abuse, such as a serious medical condition or a sudden loss of income.
The Difference an Experienced Attorney Makes
Many Orange County and Irvine residents face a common challenge: the cost of living in Southern California is exceptionally high, which often means their income looks elevated on paper even when they struggle to pay basic bills. This is where the skill and experience of your legal representative become vital.
An attorney familiar with the nuances of California bankruptcy law can:
- Accurately Calculate CMI: They carefully analyze your income sources to ensure only what is legally required is included in the CMI calculation, potentially helping you avoid the second, complex phase of the test.
- Maximize Allowable Deductions: For filers who must proceed to the second step, the difference between passing and failing often lies in properly identifying and documenting all allowable expenses. This includes leveraging specific local IRS expense standards that reflect the high cost of housing and utilities in the Orange County area.
- Navigate Complex Issues: Attorney Patrick O’Kennedy has been practicing law in Orange County for over 20 years. They bring an accomplished and personalized approach, using their deep understanding of local laws and court procedures to address complex situations, such as fluctuating self-employment income or the treatment of business debts.
- Address Special Circumstances: If your situation falls just outside the passing threshold, a qualified attorney can skillfully argue for special circumstances that demonstrate your true inability to repay your debts, making a critical difference in the outcome of your case.
When you are facing a financial crisis, you need professional support that recognizes the human element behind the numbers. The Law Office of Patrick O’Kennedy offers the experience, understanding, and compassion you need to navigate this process.
Pursue A Financial Fresh Start
Debt does not have to define your future. The Bankruptcy Means Test in 2025 is a calculation, but it is also a gateway to regaining control of your life. Whether you live near the Orange Circle or in the bustling communities of Irvine, securing a financial fresh start is possible.
We understand the stress and anxiety that come with overwhelming debt. We offer personalized support and straightforward, affordable guidance to help you pursue a favorable outcome. To discuss your eligibility to file Chapter 7, including an in-depth review of your means test calculation, please call us today for a confidential consultation at (714) 701-6356.
