If you’re struggling with overwhelming debt in New York, filing for Chapter 7 bankruptcy may provide the fresh financial start you need. Many ask, “Is there a limit to how much debt is allowed for Chapter 7?” The short answer is no, there is no minimum or maximum debt limit if you’re filing for Chapter 7 bankruptcy. There are, however, other eligibility criteria to meet.
Here’s what you need to know about the debt limits for filing Chapter 7 bankruptcy in New York. We’ll cover the income requirements, debt thresholds, exceptions, and how to navigate the process successfully. For legal help in your specific situation, please contact our trusted bankruptcy attorney John D’Amato.
What is Chapter 7 Bankruptcy?
Before diving into the debt limits, let’s first understand what Chapter 7 bankruptcy entails. Chapter 7, also known as “straight bankruptcy” or “liquidation bankruptcy,” is a legal process that allows individuals to discharge (eliminate) most of their unsecured debts. Examples of unsecured debts are credit card debt, medical bills, and personal loans.
When you file for Chapter 7, a court-appointed trustee will sell your non-exempt assets (if any) to pay off as much of your debt as possible. After this process, most of your remaining unsecured debts are discharged.
It’s important to note that Chapter 7 bankruptcy is not a one-size-fits-all solution. Certain debts, such as child support, alimony, and most student loans, cannot be discharged through this process. Additionally, you may have to surrender (or work out a payment arrangement with respect to) some of your valuable assets to the trustee, depending on the exemptions allowed in your state.
Debt Limits for Chapter 7 Bankruptcy in New York
Unlike Chapter 13 bankruptcy, Chapter 7 does not have debt limits. Even if you have both secured and unsecured debts, you may be able to file for Chapter 7 bankruptcy in New York regardless of the debt amount you have.
- Unsecured debt limit: There is no specific limit on the amount of unsecured debt you can have when filing for Chapter 7 bankruptcy. Unsecured debts include credit card balances, medical bills, personal loans, and other debts that are not secured by collateral.
- Secured debt limit: There is no limit on the amount of secured debt you can have when filing for Chapter 7 bankruptcy. Secured debts are those that are backed by collateral, such as a mortgage or a car loan.
While there are no debt limits for Chapter 7 bankruptcy in New York, the bankruptcy court will consider your overall circumstances when deciding whether to approve or deny your application. If, for example, you were withholding some financial information, the court may dismiss your case. To avoid dismissal, you can choose to convert your filing to a Chapter 13 bankruptcy.
Income Limits for Chapter 7 Bankruptcy in New York
One of the primary eligibility requirements for filing Chapter 7 bankruptcy in New York is meeting the income limits set by the Bankruptcy Code. These limits are based on your household size and the median income for your state.
The income limits for Chapter 7 bankruptcy in New York are determined by the “means test.” This test is designed to ensure that individuals with sufficient disposable income do not abuse the bankruptcy system. It prevents individuals from filing for Chapter 7 when they could potentially repay a portion of their debts through a Chapter 13 repayment plan. Here’s how the means test works:
- Calculate your current monthly income: To get this, compute the average of your household’s total income from all sources over the six months before filing for bankruptcy. This includes wages, salaries, tips, commissions, business income, rental income, and any other sources of income.
- Calculate your annual income: Take your average monthly income amount and multiply it by 12 to get your annual household income.
- Compare your annual income to the New York median income: The bankruptcy court compares your yearly income to the median income for a household of your size in New York. If your annual income is below the median income, you pass the means test and are eligible for Chapter 7 bankruptcy.
As of April 1, 2024, the median income levels for New York are:
- Household of 1: $68,135
- Household of 2: $87,550
- Household of 3: $105,435
- Household of 4: $131,389
- Household of 5 or more: Add $9,900 for each additional member.
If, on the other hand, your annual income exceeds the state median income for your household size, you’ll need to complete the second part of the means test. Here, you’ll deduct certain allowed expenses from your income to determine your disposable income.
- Calculate your disposable income: Subtract allowable expenses from your monthly income, such as housing costs, transportation expenses, food and clothing costs, and other necessary living expenses. The remaining amount is your disposable income.
- Determine eligibility based on disposable income: If your disposable income is below a certain threshold, you may still qualify for Chapter 7 bankruptcy. These federal thresholds change every three years, and currently (2024), the disposable income thresholds are as follows:
- If your disposable income is less than $9,075, you pass the means test and are eligible for Chapter 7.
- If your disposable income is between $9,075 and $15,150, you may still qualify for Chapter 7 if your disposable income is not enough to pay at least 25% of your unsecured, non-priority debts over a five-year period.
- If your disposable income exceeds $15,150, there is a “presumption of abuse,” and you may not be eligible for Chapter 7 bankruptcy. In this case, you may need to consider filing for Chapter 13 bankruptcy instead.
Remember that the median income levels and disposable income limits change periodically, so it’s best to consult with a qualified bankruptcy attorney to ensure you have up-to-date information.
Exceptions to the Debt Limits
While there are no specific debt limits for Chapter 7 bankruptcy in New York, there are certain exceptions and special circumstances that may affect your eligibility. Here are some of the most common exceptions:
- Business debts: If a significant portion of your debts are related to a business venture, the bankruptcy court may apply different rules and criteria for determining your eligibility for Chapter 7 bankruptcy.
- Fraud or abuse: If the bankruptcy court determines that you have engaged in fraudulent or abusive behavior, such as intentionally incurring debts with no intention of repaying them, your case may be dismissed.
- Recent bankruptcy filings: If you have filed for bankruptcy within the past eight years, you may be subject to additional restrictions or limitations when filing for Chapter 7 bankruptcy again.
- Secured debts and non-exempt assets: If you have significant non-exempt assets, you will want to consider other options before filing for Chapter 7. Alternatives in this scenario are Chapter 13 bankruptcy or non-bankruptcy asset liquidation.
It’s essential to consult with an experienced bankruptcy attorney to understand how these exceptions and special circumstances may apply to your specific situation.
The Chapter 7 Bankruptcy Process in New York
If you meet the income limits and other requisites for Chapter 7 bankruptcy in New York, the next step is to navigate the bankruptcy process. Here’s a general overview of what you can expect:
- Credit counseling: Before filing for bankruptcy, you must complete a credit counseling course from an approved provider. This course is designed to help you understand your financial situation and explore alternative options to bankruptcy.
- Filing the bankruptcy petition: You’ll need to file a bankruptcy petition with the appropriate bankruptcy court in New York. This petition includes detailed information about your assets, liabilities, income, and expenses.
- Automatic stay: Upon filing for bankruptcy, an automatic stay (pause) goes into effect, which temporarily stops most creditor actions against you, such as wage garnishments, foreclosures, and collection efforts.
- Meeting of creditors: Approximately one month after filing, you’ll attend the meeting of creditors, also known as the 341 meeting. During this meeting, the bankruptcy trustee – and potentially your creditors – will have the opportunity to ask you questions about your financial situation and the information provided in your bankruptcy petition.
- Asset liquidation (if applicable): If you have non-exempt assets, the bankruptcy trustee will sell these assets and distribute the proceeds to your creditors or will work out a payment plan with you to avoid liquidation.
- Financial management course: Before receiving your discharge, you must complete a financial management course from an approved provider. This course is designed to help you develop better money management skills and avoid future financial difficulties.
- Discharge of debts: If your case proceeds smoothly and there are no objections from creditors or the bankruptcy trustee, you’ll receive a discharge order from the bankruptcy court. This order legally eliminates your obligation to repay most of your unsecured debts.
The bankruptcy process can be complex and time-consuming, and it’s highly recommended to work with an experienced bankruptcy attorney who can strategically guide you through each step.
Frequently Asked Questions on Chapter 7 Debt Limits (FAQs)
Q: Is there a debt limit for filing Chapter 7 bankruptcy in New York?
A: There is no specific debt limit on the amount of debt you can have when filing for Chapter 7 bankruptcy in New York. Both unsecured debts like credit cards and the promissory note obligation related to secured debts like mortgages are eligible for discharge in Chapter 7.
Q: What if my income exceeds the median? Can I still file Chapter 7?
A: If your income exceeds the median, you must pass the second part of the means test calculation to qualify for Chapter 7. This involves deducting certain allowable expenses from your income to determine your disposable income. If your disposable income is below the limits set by the means test, you may still be eligible for Chapter 7.
Q: Are there any exceptions to the income limits for Chapter 7?
A: Yes, the income limits do not apply if the majority of your debt is non-consumer debt, such as business debt. Disabled veterans and certain service members may also be exempt from the income limits.
Q: What happens if I don’t qualify for Chapter 7 due to income limits?
A: If you fail the means test and cannot file Chapter 7, you may need to consider filing Chapter 13 bankruptcy instead. Chapter 13 involves a repayment plan over three to five years with a discharge of debts.
Q: What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy is a liquidation process, where a trustee sells your non-exempt assets to pay off creditors while your eligible debts are discharged. Chapter 13 bankruptcy, on the other hand, involves a court-approved repayment plan, where you make monthly payments to a trustee who distributes the funds to your creditors over a period of three to five years.
Q: What types of debts are not dischargeable in Chapter 7 bankruptcy?
A: Certain types of debts are not dischargeable in Chapter 7 bankruptcy, including child support and alimony obligations, most student loans, and certain tax debts. Additionally, debts incurred through fraud or intentional misconduct may not be dischargeable.
Q: Can I keep my assets if I file for Chapter 7 bankruptcy?
A: In Chapter 7 bankruptcy, you may be able to keep certain assets that are considered exempt under New York’s bankruptcy exemption laws. These exemptions vary but may include a portion of your home equity, personal belongings, and retirement accounts. However, non-exempt assets may be sold (or a payment plan worked out with you) by the bankruptcy trustee to pay off your creditors.
Q: Can I keep my home if I file for Chapter 7 bankruptcy in New York?
Whether you can keep your home in Chapter 7 bankruptcy depends on several factors, including the amount of equity you have in your home and the applicable bankruptcy exemptions in New York. If your home equity exceeds the exemption limit, the bankruptcy trustee may sell your home to pay off your creditors (and provide you with your exemption amount). However, if your equity falls within the exemption limit, you may be able to keep your home.
Q: Can I file for Chapter 7 bankruptcy more than once?
Yes, you can file for Chapter 7 bankruptcy more than once, but there are specific waiting periods and restrictions. In general, you must wait eight years after receiving a discharge in a previous Chapter 7 case before you can file again. If you previously filed for Chapter 13 bankruptcy, the waiting period is six years.
Need an Attorney to File for Chapter 7 Bankruptcy in New York? Contact John D’Amato.
While it is possible to file for Chapter 7 bankruptcy without an attorney, it is generally not recommended. The bankruptcy process can get complicated fast. An experienced bankruptcy attorney can secure your rights, ensure you meet all eligibility requirements, and handle the procedure properly.
John D’Amato has been a go-to bankruptcy lawyer in New York for over 29 years and running. If you’re considering filing for Chapter 7 bankruptcy in New York, don’t hesitate to contact John D’Amato, PLLC at (716) 703-9099. He is ready to evaluate your unique circumstances, explain your options, and guide you through every step of the bankruptcy process.