Chapter 7 Means Test

Under the current version of the bankruptcy law, in order to file a Chapter 7 bankruptcy, the debtor must pass a “means test” which will determine whether debtor, or his family, is eligible to file Chapter 7 bankruptcy.

The purpose of the means test is to keep debtors from abusing the bankruptcy system by filing when they don’t have to do so.  The presumption is that if the debtor fails the means test, he/she is trying to abuse the system.

If the debtor’s income is below the median income for families in New York, based on Census Bureau statistics, the debtor will be eligible for a Chapter 7 bankruptcy. The current means test figures for New York are listed here.

The means test uses the income of the debtor for the six months leading up to the filing of the bankruptcy.  The monthly income figure for that time is referred to as the debtor’s “current monthly income”.

Even if the debtor’s income has recently decreased, the use of the six months before the filing date may make the debtor’s income for bankruptcy purposes higher than it will actually be and place him/her into an income situation where he/she may be required to file a Chapter 13 bankruptcy.

If you make more than the median income for families in New York, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support obligations, and school expenses up to $1,500 per year. You won’t be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service’s national collection standards, you have a monthly disposable income of more than $100.00 per month.

If your monthly disposable income is more than $166.66, you have failed the means test, and cannot qualify for Chapter 7.

If your monthly disposable income is between $100.00 and $166.66, and that is enough to pay more than 25% of your unsecured, nonpriority debts (credit card bills, student loans, medical bills, and so on) over a five-year period, then you fail the means test, and Chapter 7 won’t be available to you.  If it is not enough to pay more than 25% of your unsecured, nonpriority debts over a five-year period, then you pass the means test, and Chapter 7 remains an option.

If you don’t qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.