Section 707 of the Bankruptcy Code determines whether a debtor may qualify to file for Chapter 7 Bankruptcy, by applying a budget test to debtors who exceed the median income for their household size for the state in which they live. This is referred to as the “means test” as it proports to determine whether those it applies to have the means to fund a Chapter 13 plan to pay their debts. These median income figures that determine whether the means test applies are set by the US Trustee Program, which is a division of the U.S. Department of Justice.
In the means test, the debtor’s current monthly income is determined by annualizing their last 6 months of income and dividing by 12. That figure is then subtracted from monthly expenses that are for most part substituted with Internal Revenue Service Local Standards rather than the debtor’ actual expenses. If the result is negative, the debtor is eligible to file a Chapter 7 bankruptcy. If the number is positive, the debtor cannot file a Chapter 7 bankruptcy. They will be limited to filing a Chapter 13 bankruptcy case.
Effective November 1, 2018, there are new means test figures for debtors filing for bankruptcy. The US Trustee Program updates the median income figures periodically and the new figures have gone up slightly which reflects a stronger economy. Below are the current median income figures for New York:
Household of 1: $54,014 (up from $53,132)
Household of 2: $69,642 (up from $68,087)
Household of 3: $81887 (up from $80,840)
Household of 4: $99,943 (up from 98,583)
(For household with more than 4 people, add $8,400 for each individual in excess of 4.)
If a debtor has previously failed the means test but was unable to afford a Chapter 13 Bankruptcy repayment plan, they may want to contact a bankruptcy attorney to re-evaluate their means test results using the current figures. They may now be below the median income for their household size or they may now pass the means test.
If you have any questions about the means test or bankruptcy, please feel free to contact the Law Offices of David I. Pankin, PC at 888-529-9600 or by using our easy online contact form. David I. Pankin is a Brooklyn bankruptcy lawyer helping clients in the 5 boroughs, Long Island and Westchester County. The Law Offices of David I. Pankin, P.C. has represented over 10,000 clients with their bankruptcy, predatory lending, foreclosure defense, loan modifications, and other consumer protection matters.