Since the bankruptcy code was revised under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a debtor must determine if they are subject to the Means Test (11 U.S.C. § 707) before they can file for Chapter 7 Bankruptcy. The Office of the United States Trustee periodically releases median household income figures used to determine if the Means Test applies to a debtor looking to file for bankruptcy. The U.S. Trustee Program Means Test income figures rely upon data from the U.S. Census Bureau. The new Means Test income figures effective as of April 1, 2023, for New York are as follows:
Household of 1: $68,814 (prior figures $63,715 as of 11/1/22 and $63,548 as of 5/15/22)
Household of 2: $84,958 (prior figures $78,663 as of 11/1/22 and $80,784 as of 5/15/22)
Household of 3: $103,444 (prior figures $95,779 as of 11/1/22 and $96,854 as of 5/15/22)
Household of 4: $126,167 (prior figures $116,818 as of 11/1/22 and $117,706 as of 5/15/22)
Add $9,900 for each individual in excess of 4.
The purpose of the Means Test is to see whether above the median debtors can afford to pay at least some of their debt back through a chapter 13 bankruptcy plan as opposed to enabling them to discharge their debt through a chapter 7 filing. To determine if they are subject to the Means Test, a debtor must compare their gross household income to the median household income for a household of the same size in their state. For the purposes of the Means Test, gross household income includes all income sources but does not include benefits received by the debtor under the Social Security Act or funds received for VA and DoD retirement or disability. If a debtor’s gross household income is less than the median household income figures released by the U.S. Trustee, then they are not subject to the Means Test and may qualify for Chapter 7 Bankruptcy. If the debtor’s income is above the median, they are subject to the Means Test and will have to determine whether they pass or fail. The means test also only applies in cases in which the majority of the debtor’s debt is consumer debt versus business related debt.
When calculating the Means Test, the debtor subtracts the expenses in the test from their current monthly income. A debtor’s current monthly income is calculated by taking their last 6 months of income, annualizing it, and then dividing it by 12 to get a monthly figure. Most of the expenses in the test are based not on the debtor’s actual expenses but rather on national and local IRS living expense standards. The local standards are based upon the debtor’s county of residence. Debtors are allowed to include some actual living expenses when calculating in the Means Test. Importantly, they may include mortgage, vehicle and other secured debt obligations, tax debt payments, court-ordered payments (such as domestic support obligations), and expenses related to care for an elderly, chronically ill, or disabled family member. Unfortunately, depending upon what your actual expenses are, the means test related expenses may not seem very generous. They also do not provide a deduction for student loan payments which many debtors have and are difficult to discharge under the bankruptcy code.
A debtor’s current monthly income is subtracted from their means test expenses to determine whether they pass the Means Test. If the debtor has surplus income that can be used to fund a Chapter 13 plan, they fail and are restricted to filing for Chapter 13 bankruptcy. Calculating the Means Test correctly is a complicated process and it is highly recommended that you contact an experienced bankruptcy attorney when in contemplation of filing for bankruptcy. This is especially the case when the means test is applicable for your case.
As you can see from the figures above, the median household income figures in New York have increased significantly compared with the last two times the figures were updated. Median incomes in New York are up $5,099 for a household of one, $6,295 for a household of two, $7,665 for a household of three and $9,349 for a household of four. This means that more New Yorkers struggling financially may now qualify for Chapter 7 Bankruptcy without being subject to the Means Test. Furthermore, it also means that New Yorkers who have previously failed the Means Test may now pass. If a debtor had previously contemplated filing for Chapter 7 bankruptcy in the past but failed the means test, they may now want to reevaluate whether they will qualify for chapter 7 bankruptcy with the newly revised median income figures. Even if a debtor is restricted to filing for Chapter 13 bankruptcy, these new median income figures may offer them a more affordable plan payment.
If you have any questions about qualifying for Chapter 7 bankruptcy, please feel free to contact us at The Law Offices of David I. Pankin, P.C. We have over 25 years of experience helping debtors obtain a fresh financial start and have been handling means test cases since Congress revised the Bankruptcy Code in 2005. You can contact our office at (888) 529-9600 or by using our easy online contact form.