Most New Yorkers who consider filing a bankruptcy petition must choose between filing under Chapter 7 or Chapter 13. Under Chapter 7, virtually all unpaid debts are discharged. But, under Chapter 13, the debtor must submit a plan to pay-off debts over time.
In 2005, Congress decided that persons could only seek the broad relief of Chapter 7, if their annual income was below a prescribed level. This income level has become known as the “means test.”
To qualify for Chapter 7, the debtor must submit a significant amount of financial information, including a calculation of “current monthly income.” The information and calculation are submitted on a single form called the Statement of Current Monthly Income and Means-Test Calculation.
The calculation of monthly income averages income and expenses over the last six months prior to the filing of the bankruptcy petition. The ceiling on income under the means test varies from state to state and is also dependent upon the debtor’s family situation. The income ceiling is the median family for the state of the debtor’s residence as determined by the state.
The means test is generally intended to prevent high-income earners from using Chapter 7 to discharge their debts. Most debtors will have income below the prescribed maximum and will therefore qualify for Chapter 7 relief. For bankruptcies filed in New York on or after November 13, 2013, the limit for a single person is $47,414, and ranges up to $83,614 for a four-person household.
Anyone who is contemplating filing for bankruptcy may wish to review the differences between Chapter 7 and Chapter 13 is an experienced bankruptcy attorney. Such a discussion can provide helpful information about eligibility under the means test, the overall bankruptcy process and the anticipated impact of an order approving the bankruptcy on a person’s financial situation.
Source: New York City Bar Justice Center, “PERSONAL BANKRUPTCY: IS IT RIGHT FOR YOU?,” accessed on July 9, 2017