Rochester Bankruptcy and Debt Relief » Means Test

Upcoming Changes to the Means Test Figures

alexkorotkin — Sat, 29 Oct 2011 20:08:44 +0000

Once again, the means test figures for median income are changing as of November 1, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2011, a single debtor in New York could have $46,295 in income in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2011, that figure is decreasing to $45,931. Similar decreases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,295 $57,777 $68,396 $83,942

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,931 $56,113 $66,953 $81,212

* Add $7,500 for each individual in excess of 4.

While the decreases are not large, they are going to make it more difficult for some individuals and families to qualify for Chapter 7 bankruptcy.

The figures used for the each state’s median income are based on United States Census data, and adopted by the Office of the United States Trustee. Usually, these figures are adjusted based upon the Consumer Price Index (CPI) for All Urban Consumers once or twice per year.

When the economy is growing, typically income rises because of the cost of living increases, inflation and other reasons. When the economy is not growing, income actually decreased from the prior year. As a result, the means test is adjusted and lower median income figures are used which make it more difficult for debtors to qualify for Chapter 7 Bankruptcy.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including 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 with a Rochester, NY, bankruptcy lawyer.

Upcoming Changes to the Means Test

alexkorotkin — Sun, 13 Mar 2011 04:04:14 +0000

Once again, the means test figures for median income are changing as of March 15, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to increase.

Through March14, 2011, a single debtor in New York could have $45,548 in income in income and still be able to file Chapter 7 Bankruptcy. Starting March 15, 2011, that figure is increasing to $46,295. Similar increases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,548 $56,845 $67,292 $82,587

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,295 $57,777 $68,396 $83,942

* Add $7,500 for each individual in excess of 4.

While the increases are not large, they are an improvement on the last set of income limits. The reason for a slight growth in the median income is the decline in the American economy. Since the economy is down, employers do not give employees significant wages increases. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

Upcoming Changes In the Means Test

alexkorotkin — Mon, 18 Oct 2010 02:28:23 +0000

Once again, the means test figures for median income are changing as of November 1, 2010. Unfortunately, for a lot of jurisdictions it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2010, a single debtor in New York could have $46,320 in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2010, that figure is dropping to $45,548. Similar declines will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,320 $57,902 $69,174 $82,164

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,548 $56,845 $67,292 $82,587

* Add $7,500 for each individual in excess of 4.

While the income limit for a family of four has gone up slightly, for smaller families, the income limit has declined. For a family of three, the income limit will decline by nearly two thousand dollars.

The reason for a reduction in the median income is the decline in the American economy. Since the economy is down, employers pay less and employees earn less. As a result, the American median family income has dropped once again. As the income declined, so do the income limits for Chapter 7 Bankruptcy. The unfortunate problem resulting from the recession is that as debtors make less money and have more financial problems, it becomes harder for them to qualify for Chapter 7 Bankruptcy.

Does the Debtor Need to Be Employed to File Chapter 7 Bankruptcy?

alexkorotkin — Mon, 11 Oct 2010 02:12:23 +0000

It is not necessary to have a job to file for Chapter 7 Bankruptcy. In fact, the filing of Chapter 7 Bankruptcy is probably one of the few instances in the debtor’s life where it helps the debtor not to be working.

One of the basic requirements of the Chapter 7 Bankruptcy is that the debtor must show that he or she does not sufficient income available to pay their creditors any money under Chapter 13. Whether the debtor has sufficient income that would require him to be in a Chapter 13 Bankruptcy or in a Chapter 7 Bankruptcy is determined though by the “Means Test.”

A simple explanation of the Means Test is as follows. The Means Test takes the debtor’s income for the six month before the filing of a bankruptcy and compares that income to the average income for a person in the debtor’s state with the same family size. As an example, in New York, where I practice, if a single debtor makes $46,320.00 per year or less, he qualifies to be in a Chapter 7 Bakruptcy. So someone who is not working can file under Chapter 7.

The above is only a part of the Means Tests requirements since the amount of income is only a beginning when the means test calculations are done. Other factors and calculations also have to be considered when making a decision under which Chapter of the Bankruptcy Code the debtor should file .

Sometimes, the debtor can benefit from a loss of a job, usually in a situation where he earns more than the median income for his State, after the loss of the job, once a sufficient period of time passes, the debtor’s average monthly income will be reduced and the debtor will qualify for Chapter 7 Bankruptcy.

The only time the debtor needs a job to file for bankruptcy is when he is filing for a Chapter 13 Bankruptcy.

Do Both Spouses Have to File for Bankruptcy Together?

alexkorotkin — Sat, 17 Jul 2010 23:21:11 +0000

While most married people think that if they file for Chapter 7 bankruptcy or Chapter 13 Bankruptcy, they must do so with their spouse. That is not true.

Whether one spouse or both file a bankruptcy petition, it’s their choice. It is not uncommon for one spouse to have most of the debt in his or her name only, in which case an individual filing would more appropriate. However, if both spouses are have a significant amount of debt, they should file together.

Sometimes I meet with only one spouse because the other spouse is is not willing to file for bankruptcy. In these situations, one spouse to file the bankruptcy petition and obtain necessary relief from the bankruptcy court.

There are also some additional issues that need to be considered. Initially, if only one spouse is filing and the couple is residing together, the other spouse’s income may be relevant for the purpose of household income as reflected on Schedule I, resulting disposable income reflected on Schedule J, and that spouse’s income may also be relevant for the means test.

As far as the means test, it is necessary to determine whether there is a presumption that there is enough disposable income available to give unsecured creditors sufficient payment under a Chapter 13 bankruptcy plan, such that permitting a Chapter 7 could be considered an abuse of discretion. But even if the means test is passed, and no presumption of abuse arises, or, alternatively, if this is a non-consumer bankruptcy and the means test is not even required, abuse can still be found given the totality of the circumstances. The income and assets of the non-filing spouse are important in both those considerations. If the debtor has legal rights to share in the income and assets of a non-filing spouse or even if the practice has been between spouses to share income and assets regardless of legal rights, the bankruptcy law tells us that the debtor’s access to the non-filing spouse’s income and assets has to be considered in deciding whether the bankruptcy court would permitting a Chapter 7 bankruptcy filing.

An experienced bankruptcy attorney can analyze each consumer’s financial situation and suggest whether a married couple should file an individual or a joint petition.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including 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 with a Rochester, NY, bankruptcy lawyer.

Chapter 13 Bankruptcy and Projected Disposable Income

alexkorotkin — Mon, 21 Jun 2010 03:25:11 +0000

In order to confirm a plan in a Chapter 13 bankruptcy, unless creditors are paid in full, the debtor must pay to unsecured creditors his or her “projected disposable income” expected to be received in an “applicable commitment period”, either 36 or 60 months depending on the Chapter 13 plan. Since the enactment of 2005 BAPCPA, there has been a dispute over what “projected disposable income” meant. A recent decision of the United States Supreme Court has resolved that issue, at least partially.

In Hamilton v. Lanning, decided on June 7, 2010, the Supreme Court held that “when a bankruptcy court calculates a debtor’s projected disposable income, the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” In other words, rather than simply applying the calculation of “current monthly income,” which looks at the debtor’s income for the 6 calendar months before the filing of the petition, the court may consider changes in income that have occurred, or are expected to occur, or virtually certain to occur at the time of confirmation.

In Lanning, the debtor had received a termination buyout from her former employer which, when included in “current monthly income,” dramatically increased her income over what she was really making, and the mechanical application of current monthly income approach would have resulted in her having to pay more into the plan than she possibly could afford. Because after the buyout she was making wages well below the state median income, the Supreme Court held that this change in income could be considered in calculating her “projected disposable income.”

While being practical and understandable, this “forward looking” approach should not give the bankruptcy court or the bankruptcy trustee, or the debtor, an opportunity to make unsubstantiated claims. The Supreme Court stated that “a court taking the forward-looking approach should begin by calculating disposable income, and in most cases, nothing more is required. It is only in unusual cases that a court may go further and take into account other known or virtually certain information about the debtor’s future income or expenses.”

While the debtor’s expenses as included in the “projected disposable income” were not specifically before the Court, the opinion stated that the court may consider changes in income or expenses when calculating projected disposable income. In Lanning, the Supreme Court stated that what is required is a “change” in income or expenses, not a discrepancy between the expenses allowed on the “means test” and the debtor’s actual expenses. As I previously discussed, debtors whose “current monthly income” is above the state median, many expenses are determined based on fixed allowances, not on what the debtor’s actual expenses are. For example, the food and related items allowance (set by the IRS) is $1,000 for the debtor’s household size, but the debtor only spends $500 on these items, he or she can claim the full allowance in calculating “projected disposable income.” Under the statute, the bankruptcy trustee is not be allowed to recapture that difference, and require that it be paid to creditors. Conversely, if the debtor spends $2,000, he can still only claim the allowance. As a result, for many debtors, the fixed “means test” numbers result in a more favorable result than their real expenses as stated on Schedules I and J. Because the difference between the means test expenses and expenses reported on Schedule J, Lanning does not change the existing differences between them.

At the same time, under Lanning, the debtor may be disadvantages if the debtor is disallowed a deduction for secured debt payments where property is being surrendered or perhaps where liens are being stripped down or off. Under Lanning, such change in the debt payments may be seen as “change” in expenses. However, unless there is a “change” in those secured debt expenses that are allowed as real figures on the means test, the means test expenses will remain the same.

Means Test – Inclusions and Exclusions

alexkorotkin — Sun, 13 Jun 2010 14:40:19 +0000

In a typical Chapter 7 Bankruptcy, the most significant hurdle that the debtor has to overcome is the means test.

The 2005 amendments to the bankruptcy code created a new Means Test. The main purpose of this test is to a) determine if an individual is eligible to file a Chapter 7 Bankruptcy and b) to determine the disposable income of a Chapter 13 debtor who is above the median income.

In order to determine eligibility to file Chapter 7 Bankruptcy, the means test is calculated by entering the debtor’s income figures for the prior six months into form B22 of the bankruptcy petition. If the debtor is below median income, no further steps need be taken and the debtor is presumed to be able to file Chapter 7.

If the debtor is above median income, further sections of form B22 must be filled out. The debtor’s estimated monthly income (based on the prior 6 months) is calculated and deductions are made using both IRS standards (for most living expenses) and some of the debtor’s actual expenses (including secured debt payments and health expenses).

If, after these deductions, it is determined that the debtor has minimal or no monthly disposable income, the means test is satisfied and the debtor is presumed eligible to file Chapter 7 Bankruptcy. If the debtor fails the means test, he or she is presumed ineligible to file Chapter 7, and absent special circumstances warranting an exception, must seek relief under another chapter of the code, typically, Chapter 13 Bankruptcy.

In order to determine disposable income in a Chapter 13 case, the Means Test is conducted much the same way as in a Chapter 7 case. If the debtor is below median income, the remaining sections if form B22 need not be filled out and the debtor’s disposable income will be based on his or her actual income and expenses at the time the petition is filed. If the debtor is above-median income, the remaining steps of the means test are performed and disposable income is the figure reached through the above-described means test calculation. In many instances the figure yielded by the means test will be close to what the debtor pays every month over the life of the Chapter 13 plan.

What is also critical is what income is included within the definition of income. Initially, the spouse’s income may be included, even if the spouse is not filing bankruptcy. If you are receiving support in your household from your spouse, then you’re supposed to have that income available for your creditors even if you don’t earn actually that income.

Another issue which comes up fairly often is income received from sources other than work. Some sources of “other income” could include: interest, dividends, pension income, bonus payments, child support, alimony or maintenance payments, disability payments under workers compensation or private insurance. Some other sources of income to the family which may or may not be income include: withdrawals from IRA and 401k plan, income tax refunds.

Some sources of revenue are not income for purposes of the means test: social security payments received by the filer or his/her spouse, unemployment benefits, certain types of income received by the members of the National Guard or Armed Forces Reserve.

Social Security income: Means testing does not consider social security as income. Accordingly, someone with $2,000.00 per month social security income will pass the means test even if expenses are only $1,000 and $1,000 is left over to pay creditors on the means test. Social Security Income includes both Social Security Disability (“SSD”) as well as Supplemental Security Income (“SSI”) payments. Social Security income may be received by children in the household as survivor benefits in a situation where one of the parents has died. Despite the fact that those benefits can be substantial, U.S. Trustee’s Office advises that that survivor benefits income is not to be included in the means test, despite the fact that, in most situations, such income is used to pay household expenses.

The National Guard and Reservists Relief Debt Act of 2008 applies to certain members of the National Guard and reserve components of the Armed Forces. If you are a member of the National Guard Member or Armed Forces Reserve, then you will be temporarily excluded from the means test for entire time you are on active duty and 540 days thereafter, provided you serve at least 90 days. If your duty is less than 90 days, you do not qualify. If you are active member of the active duty military, you do not qualify.

Another important exception applies to the situations where the debtor has primarily non-consumer debt. If the debtor’s debt is primarily non-consumer debt, then means test does not apply. Accordingly, someone making $10,000 per month with primarily business debts, still qualifies for Chapter 7 relief and discharge.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, 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 with a Rochester, NY, bankruptcy lawyer.

Can You File Chapter 7 Bankruptcy If Your Income Exceeds Median Family Income?

alexkorotkin — Mon, 09 Nov 2009 04:15:09 +0000

In these uncertain economic times, I am getting this question more and more from people considering filing for bankruptcy all over Western New York. So can someone in Rochester making more than $75,000 file for Chapter 7 bankruptcy? The answer to that question is likely to be yes.

I have previously written about the means test component of the Chapter 7 bankruptcy. Under BAPCPA, the means test and its income standards were designed to be a bright line dividing those that were able to file Chapter 7 bankruptcy from those who were forced to file Chapter 13 bankruptcy. But the means test is more complicated than that, and the sheer median family income numbers alone are not alone dispositive, as discussed below.

The first Chapter 7 bankruptcy test the debtor has to pass in New York in order to qualify, is the Median Family Income test. It is the test that most debtors have heard about. Most debtors have heard about it from friends or relatives who filed for bankruptcy, usually along the lines “If you make over a certain amount, you can’t file.” Like most things you hear, these statements are only partially correct. The current Median Income limit in New York for a family size of one is $46,485. For a family size of two, the amount is about $58,109.

So how can someone filing for bankruptcy in Rochester who earns over $75,000 possibly file for bankruptcy in New York? The short answer is that BAPCPA, the bankruptcy law that was passed in 2005, allows you to take certain deductions when determining if you are qualified to file Chapter 7 bankruptcy. You can take standard IRS deductions that your bankruptcy lawyer knows about. You can deduct certain childcare expenses. You can deduct taxes that are being garnished from your wages. You can deduct your actual mortgage payments. You can deduct vehicle ownership expenses. You can deduct health care expenses. You can deduct food expenses. In other words, if you’re earning more than that median income test, you still absolutely have a possibility for filing for Chapter 7 Bankruptcy in Western New York.

While most of the deductions are technical in nature and require analysis of the debtor’s expenses and needs, I would recommend you speak with a Rochester bankruptcy lawyer and that lawyer will sit down with you and explain how the bankruptcy law requirements apply to you. This is what makes a difference to the debtors since a bankruptcy attorney can help someone in difficult financially situations. When meeting with the bankruptcy attorney, the debtor should discuss the full extent of his/her financial situation and when finished, should understand what course to take.

If you are dealing with debt problems in Western New York, including Rochester, 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 with a bankruptcy lawyer.

Converting From Chapter 13 to Chapter 7 Bankruptcy

alexkorotkin — Mon, 24 Aug 2009 03:22:07 +0000

While debtors who file Chapter 13 to protect certain assets are usually diligent in making their payments, sometimes the circumstances have a way of interfering with their ability to meet the plan’s requirements. It is possible that the debtor loses his/her job, missed a few payments, and creditors lifted stay, or the debtor decided that the assets were not worth preserving. One option that is always available in Chapter 13 is to dismiss the case, which the debtor has a right to do at any time in a Chapter 13. But this may leave you with credit card or other debt, or you may be worried that the house or car will be sold at foreclosure or repossession, or that the lender will go after you for a deficiency. In these cases, the best option is to covert your case to a Chapter 7.

In those situations, the debtor may still seek relief from the bankruptcy court, and convert the case from Chapter 13 to Chapter 7 bankruptcy, provided that the means test can be met. When converting the case from a Chapter 13 to a Chapter 7, there is still some paperwork that needs to be taken care of. The petition and schedules need to be updated with respect to the property, whether or not it is kept by the debtor. With respect to any property securing the debt, arrangements must be made with the creditor in order to keep it.

Schedules I and J for your income and budget along with the Means Test have to be updated to reflect that you no longer have the money to make payments in a Chapter 13 case . Once all of the paperwork has been revised, then the debtor must sign the amended schedules, so that they can be filed with the court.

Once the attorney files a Notice of Conversion with the Court and pays the $25 conversion fee, the Court will convert your case to a Chapter 7. There are also other consequences associated with the conversion. Initially, any money that the Chapter 13 Trustee is holding, less any administrative fees that the Trustee is due, will be returned to to the debtor. Any plan payments that are withheld from the debtor’s paycheck will be returned as well. A new Chapter 7 Trustee will be appointed and a new 341 hearing (meeting of the creditors) will be held. The debtor will also have to file a Statement of Intention with respect to any assets subject to creditors’ claims, and also file amended schedules listing any additional debt incurred between the filing of the Chapter 13 and the date of conversion.

Chapter 7 Means Test

alexkorotkin — Thu, 30 Apr 2009 20:19:04 +0000

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.