For individuals facing overwhelming debt, bankruptcy can offer a much-needed fresh start. However, for those debtors who are considering filing for Chapter 7 bankruptcy, they must first find out if the means test applies to their case, and if it does, whether they pass it. As of April 1, 2025, the income thresholds used in this test have been updated, potentially changing the path to financial relief. Here is what you need to know about the new figures and how it might impact your eligibility for chapter 7 bankruptcy.
What Is the Bankruptcy Means Test?
The bankruptcy means test was added to the Bankruptcy Code in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). It is used to determine whether someone qualifies for Chapter 7 bankruptcy, which allows most unsecured debts—such as credit card bills, personal loans, and medical expenses—to be discharged. The test requires the calculation of the debtor’s average monthly income over the past six months and compares it to the median income for a similarly sized household in their state. If a debtor’s income is below the state median, then the means test does not apply, and the debtor may qualify to file for Chapter 7 bankruptcy. However, if a debtor’s income is above the threshold and a majority of their debts are considered to be consumer-based, then the test applies. The test, which is somewhat of a fictional household monthly budget, factors in certain allowable expenses along with IRS local standards for living expenses to determine whether the individual has enough disposable income to repay at least some of their debts through Chapter 13 bankruptcy instead.
In the test, almost all of a debtor’s household income must be included, including that of a non-filing spouse. This includes, but is not limited to, W-2 wage income, overtime pay, commissions, bonuses, 1099 income, pension income, unemployment benefits, insurance settlements and even gambling winnings. However, Social Security Retirement, Social Security Disability, Supplemental Security Income, Veterans Administration or Department of Defense Death or Disability benefits, DoD Retirement, or DOD Severance pay are all excluded in a means test calculation for the debtor that is filing. That income exclusion does not apply to a non-filing spouse.
As noted above, the test is actually somewhat fictional. It bases a debtor’s income only on the most recent 6 months of income, and as mentioned above, most of the expenses in the test are based on IRS local standards and not the debtor’s actual expenses. Nevertheless, the law does allow some of the debtor’s actual expenses, such as mortgage payments, vehicle payments, charitable contributions, and court-ordered support payments, but not many others. If the test shows that a debtor has disposable income, then they are restricted to Chapter 13. However, if the test does not show enough income to fund a Chapter 13 plan, then the debtor passes and may file for Chapter 7 bankruptcy. In essence, the means test serves as a gatekeeper, helping to distinguish between those who truly cannot pay their debts and those who may have the means to pay at least a portion of their debt back through a structured repayment plan.
What Changed in April 2025?
The U.S. Trustee Program releases and periodically updates the median income figures used in the means test, based on data from the Census Bureau. As of April 1, 2025, the following new income thresholds apply to New York:
- For a one-person household: $68,795
- For a two-person household: $89,052
- For a three-person household: $108,589
- For a four-person household: $134,443
These figures are crucial for determining eligibility. For families with more than four members, $11,1000 is added per additional member.
What Do These Changes Mean for Bankruptcy Filers?
The rise in income thresholds means that more individuals and families in New York may now qualify for Chapter 7 bankruptcy. For many who were previously too far above the cutoff, this update could make the difference between having to enter a repayment plan under Chapter 13 and being able to discharge debts entirely under Chapter 7. Of course, not everyone will qualify, even under the new figures. Those whose income still exceeds the threshold may be required to file under Chapter 13 of the Bankruptcy Code. While Chapter 13 bankruptcy involves a repayment plan that is typically 5 years long, it can still be a great option for those that are struggling with debt and can afford the required payment plan. It is also a better option for debt resolution than risky debt settlement programs.
Reassessing Eligibility in Light of the Update
For individuals considering bankruptcy—or those who were told in the past that they did not qualify for Chapter 7—now is a great time to reassess whether you qualify. The updated figures may change your options. If your income is close to the new limits, it is worth speaking to an experienced bankruptcy attorney who can help review your financial situation under the current guidelines. This is especially important for individuals with irregular or fluctuating incomes, may have a had period where they earned extra or higher than normal income, self-employed individuals, or those with unique financial circumstances. An experienced bankruptcy attorney can properly calculate the means test results and guide you toward the most appropriate chapter of bankruptcy for your situation.
Contact the Law Offices of David I. Pankin, P.C.
The Law Offices of David I. Pankin, P.C, has been representing clients on means test-based bankruptcy cases since the law’s inception. We are here to help you make sense of your options and determine whether Chapter 7 or Chapter 13 bankruptcy is right for you. With over 28 years of experience helping New Yorkers get out of debt, we are committed to guiding you every step of the way. Contact us today for a free consultation at (888) 529-9600 or by using our easy online contact form.
More information on the means test is available on the US Trustee’s Website: https://www.justice.gov/ust/means-testing
