When you want to file for Chapter 7 bankruptcy in New York and your income exceeds the state median for your household size, you are required to pass the means test. Its purpose is to prevent higher-income filers from taking advantage of the system and opting for Chapter 7 when they are capable of repaying some or all of their debt in a Chapter 13 arrangement.
New York median income amounts
In the majority of Chapter 7 cases, your annual income is compared to the stateâ€™s median income for the same household/family size. For New York State, the totals are:
- Single-person household: $50,768
- Two-person household: $65,233
- Three-person household: $74,925
- Four-person household: $90,852
If your income is higher than the median amounts listed above, then the next step is to apply the means test and see if you pass.
Calculating the means test
First, you subtract your allowed expenses from your monthly income. Permitted expenses for Chapter 7 purposes include;
- Income taxes
- Involuntary payroll deductions such as union dues
- Insurance premiums
- Child care
- Court-ordered payments such as child support or spousal maintenance
Multiply the result by 60, which represents a five-year period. If the amount is less than $7,700, you pass the test and can file for Chapter 7, as the presumption is that you do not have enough disposable income to repay your creditors.
Debt to income comparison
Should your disposable income be more than $7,700 but less than $12,850, compare the amount to 25% of the total value of your unsecured debts. If it is lower, you pass the means test. If it is more, you do not pass, and Chapter 13 is the only option open to you.
For example, if your monthly disposable income is $150, it would equal $9,000, which is more than $7,700 and less than $12,850. If your unsecured debts amounted to $40,000, 25% of that amount would equal $10,000. Since $9,000 is less than this amount, you would pass the means test.
Exceptions to the means test
If any of the following circumstances apply to you, you may file for Chapter 7 without having to pass the means test first.
- You are a disabled veteran who accumulated most of your debt while you were on active duty or participating in homeland defense.
- Over 50% of your debts are business-related instead of personal.
- You are a member of the National Guard or Armed Forces Reserves on active duty for at least 90 out of the 540 days that preceded your filing.
If you are in financial difficulty and Chapter 7 appears to be your best solution for a fresh start, then contact a New York bankruptcy attorney today. Jayson Lutzky is a Bronx, New York personal bankruptcy attorney with more than 33 years of experience. He will help you determine whether or not you meet the means test and advise you on the best way to rebuild your financial future. Mr. Lutzky offers free in-person consultations and can be reached at 718-329-9500. Visit www.MyNewYorkCityLawyer.com to learn more.