Chapter 7 bankruptcy can benefit many people who are experiencing financial difficulties. The fundamental idea behind a Chapter 7 bankruptcy is giving a debtor a clean slate by liquidating all of his or her non-exempt assets and using the money to pay off creditors. Most debts that are not paid off are discharged, meaning that the debtor no longer has any legal obligation to pay that debt.
Partially due to perceived abuse of the bankruptcy system, Congress passed a law in 2005 making it more difficult for consumers to file for bankruptcy. As part of these reforms, a “means test” was introduced in order to prevent consumers with too high of an income from filing for Chapter 7. While the means test can be complicated to apply, here are some basics about the way that it operates.
The Means Test
As a potential filer, you must first determine whether your current monthly income is less than the median income in your state. If it is, you pass the test and you can file without having to make any additional determinations. The median income levels by household size for New York as of 2014 are as follows:
• 1 person – $48,109
• 2 people – $60,504
• 3 people – $71,179
• 4 people – $84,839
If your monthly income exceeds these amounts, a second calculation needs to be completed. You must determine your “disposable income” by subtracting your “allowable expenses” from your monthly income. Allowable expenses involve a combination of national and local standards; national standards have been established for food, clothing, out-of-pocket healthcare, and other items. Standards for housing, utilities, and transportation are established locally.
For people who are not able to file for Chapter 7 bankruptcy because they fail the means test, Chapter 13 may be an option. Chapter 13 can often help people who have relatively high monthly income, but have fallen behind on their debts. Discussing your situation with an attorney will help you determine which type of bankruptcy, if any, is right for you.
Anyone who is experiencing financial difficulties should discuss their circumstances with an experienced bankruptcy lawyer. To schedule a free consultation with New York lawyer Ronald P. Weiss, call our office today at (631) 271-3737.
Law Office of Ronald D. Weiss, P.C. | Long Island Bankruptcy Attorney
734 Walt Whitman Rd #203
Melville, NY 11747