Updated Effective April 1, 2021
The U.S. Trustee Program, the division of the Department of Justice that oversees the bankruptcy process in the United States Federal Court, recently released updated median income data for each state. These income figures apply to all bankruptcy petitions filed on or after April 1, 2021. They are used to determine whether the income and expense test in the Bankruptcy Code, often referred to as the “means test,” applies in a consumer bankruptcy case. Debtors with a household income above the median income for their state, who have primarily consumer-based debts, must complete the means test budget calculations to determine their eligibility to file for Chapter 7 bankruptcy.
In a Chapter 7 bankruptcy case, a debtor may quickly eliminate their dischargeable debts and obtain a financial fresh start, as opposed to having to repay at least some of their debts in a Chapter 13 bankruptcy proceeding. The rationale behind the means test is to determine whether a debtor has sufficient disposable income that can be used to repay creditors in a Chapter 13 bankruptcy payment plan. If a debtor fails the means test, they will be restricted to filing for Chapter 13 bankruptcy. The means test is also used to determine a debtor’s minimum monthly payment obligation in a chapter 13 plan.
The bankruptcy means test proports to calculate the debtor’s disposable income using a formula that includes all of the debtor’s household income received during the prior 6-month period. Please note, the Bankruptcy Code factors almost all sources of income into the means test, including short term gig-related work, bonuses, overtime, and commissions. Only Social Security, Veteran’s Administration and Department of Defense, or federal COVID-19 pandemic benefits are excluded from the income portion of the means test. On the expense side, the means test uses a monthly budget incorporating standardized local living expenses provided by the IRS, along with certain other allowed expenses, including secured debt payments.
The newly updated median income figures may enable some additional debtors to qualify for Chapter 7 bankruptcy. Below are the median income figures for New York State that are used in determining whether the mean test applies in bankruptcy cases filed after April 1, 2021:
Household of 1: $60,696
Household of 2: $77,159
Household of 3: $92,508
Household of 4: $112,424
For household with more than 4 people, add $9,000 for each additional individual.
If a debtor contemplated filing for Chapter 7 bankruptcy in the past and failed the means test, they may want to reevaluate whether they qualify for chapter 7 bankruptcy with the revised median income figures. With the updated figures, a debtor may now pass the means test and be able to receive a financial fresh start through Chapter 7 bankruptcy. In addition, if a debtor is still restricted to filing for Chapter 13 bankruptcy, the new median income figures may offer them a more affordable plan payment.
The Law Offices of David I Pankin, PC is a Brooklyn Bankruptcy lawyer that has been helping debtors file for bankruptcy for over 24 years. If you have any questions regarding filing bankruptcy, contact our offices at 888-529-9600 or by using our easy online contact form. We look forward to the opportunity to providing you with a fresh financial start.