Filing for Chapter 7 bankruptcy may be the smart solution if you’re overwhelmed by debt and want most of it forgiven. If you’re wondering whether you qualify for Chapter 7 bankruptcy, the main eligibility requirement you have to meet is passing the “Means Test.”
Here’s how to know whether you can pass the Means Test to qualify for Chapter 7 in New York State. If you have further concerns, don’t hesitate to speak with Attorney John D’Amato, our trusted bankruptcy attorney in Buffalo.
What is the Means Test?
The “Means Test” is a calculation of your annual income and how it compares to the median income in the state. If your income falls below the median income for a household of your size, you pass the test and qualify for Chapter 7 bankruptcy.
This test is the bankruptcy court’s main tool for ensuring that a person filing for Chapter 7 has little to no means of paying off their debts. This helps prevent Chapter 7 from being abused by individuals or businesses who could otherwise afford to pay their creditors.
When you do the paperwork for your Chapter 7 filing, the Means Test will come up in the form of questions in the Statement of Current Monthly Income form. You can also do the calculation on your own to determine whether you qualify for Chapter 7.
How to Do the Chapter 7 Means Test
Here are the basic steps to do the Means Test in New York:
- Add up your household income from the previous six complete months. This includes your earnings as well as those of other household members, if any. Divide the total by six to get your average monthly household income.
- Multiply your average monthly household income by 12. This is your annual household income.
- Compare your annual household income to the state median income for a household of your size. State median incomes change twice a year, so be sure to look up the latest figures. As of April 1, 2023, the state median incomes in New York are as follows:
- Household of 1 – $68,814
- Household of 2 – $84,958
- Household of 3 – $103,444
- Household of 4 – $126,167
- Household of 5 – $136,067.
- If your yearly income does not exceed the median amount, you pass the Means Test. However, if your income exceeds the limit, there may still be a way to file Chapter 7. For this, you must complete the Means Test Calculation form, which we’ll discuss next.
Means Test Calculation Form
If you didn’t pass the median income test above, it doesn’t automatically mean you can’t file for Chapter 7 bankruptcy. The law allows you to deduct certain expenses from your income and compute whether you have any disposable income left. If your disposable income is less than the designated limit, you’ll still pass the Means Test.
This second part of the Means Test is done through the Means Test Calculation form. The form provides instructions on what adjustments you can make to your monthly income and what expenses you can subtract. Expenses may include:
- Healthcare expenses and deductibles
- Personal care
- Mortgage or rent
- Housekeeping and home repairs
- Car or transportation costs
- Life insurance
- Child support or spousal support
- And more.
After you subtract all your allowable expenses, the remaining amount is your disposable income. Compare your disposable income to the federal limits stated in Part 3, Item 40 of the form. These limits change every three years, but in 2023, they are as follows:
- If your disposable income is less than $9,075, there is no presumption of abuse, meaning you’ve passed the Means Test.
- If your disposable income is at least $9,075 but not more than $15,150, you may still pass the Means Test if the extra amount isn’t enough to pay at least 25 percent of your unsecured debt over a five-year period.
- If your disposable income is over $15,150, there is a presumption of abuse and the court will likely dismiss your Chapter 7 filing. Consult with a bankruptcy attorney for your other options, such as Chapter 13.
Contact John D’Amato, Buffalo Bankruptcy Attorney
For over 30 years now, Attorney John D’Amato has guided and assisted Western New Yorkers in successfully filing for bankruptcy. Talk to Mr. D’Amato about your Chapter 7 concerns or if you need any help with the process. Your consultation is confidential. Call Attorney John D’Amato at 716-706-0000 today.