If you are an individual attempting to declare Chapter 7 bankruptcy in New York, you may have to pass a series of tests in order to make sure you are eligible.
If You Want to Declare Personal Bankruptcy
If you are drowning in consumer debt https://www.ny-bankruptcy.com/is-chapter-7-bankruptcy-right-for-you/ and you decide to declare personal bankruptcy, the first thing a trustee will look at is which classification you are eligible for. To do this, there is a series of tests to determine how best to deal with your case.
For a Chapter 7 case, if the majority of your debt is “consumer debt”, you must complete what is known as a “Means Test”. The Bankruptcy Code defines “consumer debt” as debt incurred by an individual primarily for a personal, family or household purpose.
Consumer vs Non-Consumer Debt
One item the trustee will look at is what types of debt you have. Most personal bankruptcies are based on consumer debt (credit cards, home mortgages, car loans, etc.…). If over 50% of what you owe is considered consumer debt, you will have to pass the Mean Test in order to declare Chapter 7 bankruptcy.
Non-consumer debt is generally considered “business debt,” or debt that was incurred in the pursuit of profit. Even people who don’t own a business may have some of what is considered non-consumer debt. If you took out a home equity loan to fix up your house – that’s a consumer loan. If you took out a home equity loan to invest in a rental property – that’s a non-consumer loan. A debt against you for a car accident would not be considered a consumer debt. A personal guaranty of a business debt would also not be considered a consumer debt. There are other non-business debts that are considered non-consumer debt, such as student loans, taxes, and child support (read more here https://www.ny-bankruptcy.com/will-bankruptcy-clear-all-my-debts/.
The Means Test
Statistics put together by the Department of Justice determine the amount of income for various family sizes in your state. If you are below the income for your family size, you will have passed the test. The Means Test requires you to calculate your current monthly income, which is defined as the average gross income for the six months prior to your Bankruptcy filing. You then have to compare that with the Median Income for your family size according to the Median Income for your state.
For Chapter 7 cases filed in New York after May 15, 2021, the Median Income is as follows:
If your current monthly income exceeds the Median Income for your household, you must complete
the means test, which includes variables such as your income and certain deductions that you can take for secured debt and other expenses.
If over 50% of your total debt is non-consumer debt, you are not required to complete the Means Test.
If you pass the Means Test or are otherwise exempt, you are one step closer to filing for Chapter 7.
The Budget Test
The next hurdle that you have to overcome is the “Disposable Income Test”, also known as the “Budget Test”
Under this test, the Court looks at your “disposable income” to determine whether you are eligible for Chapter 7. Disposable income is what you have left over after paying normal living expenses (such as rent, mortgage payments, car payments, car insurance, utilities, and food). It does not include payments that you would pay on credit cards or other unsecured debts. If, after deducting your monthly living expenses, you have excess disposable income, you will not be allowed to declare Chapter 7 bankruptcy, even if you passed the Means Test.
What to Do If You’re Not Sure Which Bankruptcy You Are Eligible For
Since there are so many variables, the best option you have is to contact an experienced bankruptcy lawyer to get advice on your particular situation. Reach out to New York bankruptcy attorney Ronald Weiss for a free consultation. He can tell you what you need to know about Chapter 7 bankruptcy, and help you get your case started. Call 631-271-3737 and take the first step to a fresh start.