Means Test For Bankruptcy in New York
In 2005, the United States made substantial changes its bankruptcy laws. One of the major changes is known as the Means Test which is an income and expense test under the bankruptcy code. What does that mean? Simply put, it means that if you want to file a Chapter 7 bankruptcy for consumer debts, you must meet certain requirements. The Means Test requires that your “current monthly income” be less than the median income in your state for your particular family size if you want to be able to file for bankruptcy under Chapter 7.
The Means Test was designed to limit the use of Chapter 7 bankruptcy. It does this by deducting specific expenses from your “current monthly income” (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly “disposable income.” The debtor’s “current monthly income” is reduced by a set of allowed deductions specified under the “collection standards of the Internal Revenue Service.” Because these deductions do not necessarily reflect all the actual expenses the debtor incurs on a monthly basis, there are other deductions that are taken into account in the calculation. They include:
- actual expenses not provided by the Internal Revenue Standards including “reasonably necessary health insurance, disability insurance, and health savings account expenses,”
- continued contributions to care of nondependent family members,
- a limited amount of expenses for tuition and other miscellaneous costs associated with sending your children to grade and high school,
- additional home energy costs in addition to those laid out in the IRS guidelines that are reasonable and necessary,
- 1/60th of all priority secured debt that will become due in the five years after the filing of the bankruptcy case,
- expenses for protection from family violence,
- continued contributions to tax-exempt charities.
The higher your disposable income, the more likely you won’t be allowed to use Chapter 7 bankruptcy. If you do not pass the means test, it may be rebutted in the case of “special circumstances.” If you do not pass the Means Test, you are not necessarily out of options. You may still be eligible to file a Chapter 13 bankruptcy.
The Law Offices of David I. Pankin, P.C. have helped thousands of New Yorkers get a financial fresh start. The attorneys at the firm understand the nuances of the Chapter 7 bankruptcy Means Test and are dedicated to crafting legal strategies that are best suited to each client’s unique, financial situation.
For more information on how the firm can help you to control of your financial life, please contact our office by phone at 888-529-9600 to arrange for a free, initial consultation regarding the Means Test and Chapter 7 bankruptcy.
Remember, “bankruptcy is not the end, it’s a new beginning.”