In order to file Chapter 7 bankruptcy you must qualify by passing the means test. The “means test” was designed to limit the use of chapter 7 to only those who truly cannot repay their debts. To qualify, your household income must lower than your states median income, or you must pass the means test formula.
How does the “means test” work?
If your household income is below your states median income then you automatically pass the test and qualify for chapter 7. However, if you make above the median income then additional calculation must be done. The calculation can be done using a particular formula. This formula considers all your expenses and household income for the previous 6 months and determines if you have enough disposable income to repay some of your debts.
What is the median income for New York?
The median income for New York is $49,028.00 annually. Form 22A-1 requires you to list your last six months of your income, if it is lower than $24,514, then you are presumed eligible for Chapter 7 under section 707(b)(2) of the Bankruptcy Code. If you make over this amount, you must continue on to Form 22A-2, which calculates your expense deductions. This is the first step of the means test, which is simple: if your household annual income is lower than the median income for your state, you pass. Period, you’re done. You don’t need to complete the rest of the test; you can file chapter 7.
What if my income is above the median income? What do I do then?
The test can get slightly more complicated if your household income is higher than your state’s median income. The further calculation determines whether you have enough income left over after paying all allowed expenses (disposable income), to pay at least a portion of your unsecured debt (credit card bills).
What is household income?
Household income considers all the income from all persons in the household. This obviously increases your annual income according to the means test calculation. The good thing is that the median income of your state is higher depending on how many people are in the household. This usually includes dependant children and spouses, not roommates. For example, if you are a single parent with 3 dependant children, the median household income limit is increased to $88,642 annually.
What are allowed expense deductions?
Allowable expenses vary depending on what county you live in, each county has different allowed amounts for categories of expenses such as: housing, transportation, and basic necessities. If you live in New York County it’s highly likely that your monthly expenses are higher than someone with similar means that lives in Niagara County. Examples of expenses that are considered are your rent, public transit costs, out of pocket health care costs, and living expenses such as food, clothing, and household supplies.
How do I do the expense deduction calculation?
You can find calculators online to enter your income and expenses to see if you qualify; however, these are not always up to date and accurate. Don’t rely on these calculators, but it can help give you a ballpark of whether or not you would likely qualify. It is always best to speak with an attorney to determine whether or not you qualify for chapter 7.
What if I don’t qualify?
If you don’t qualify that doesn’t mean you can’t file for bankruptcy. It just means you can’t file chapter 7. You may still likely file chapter 13; however, that is a different type of bankruptcy. If you are not sure about what chapter 13 is, please refer to: https://balmerblack.com/what-is-chapter-13-bankruptcy-the-basics/.
Qualifying for chapter 7 is a requirement that can determine if you are eligible to have your debts discharged. This does not always mean that if you do qualify it is in your best interests to file. Sometimes even if you qualify, it may not be best for you to file. It is important to remember that everyone situation is different and to be advised of all your options it makes sense to speak with an experienced bankruptcy attorney.
The above post was written by Joshua C. Sibenik, Esq.