Monday, July 19, 2010

The "Means Test," or Do You Earn Too Much for Chapter 7?

MEANS TEST, or
Do you earn too much for Chapter 7?

If your household income is below the median State income,
the Means Test does not apply to our case. You can file your
petition for bankruptcy under Chapter 7, which means most of your
debt will be discharged (except for student loans, child support, etc.,
which are non dischargeable).

You may think that your financial situation leaves you
no choice but to declare bankruptcy, however, if your income
during the six months prior to filing your petition is above the median
household income for the state where you live you may not qualify to
file under Chapter 7. Instead, you may have to consider filing a
bankruptcy petition under Chapter 13. To simplify the issues, if you
qualify for Chapter 7, you can discharge most of your debts; and if you
file a Chapter 13 petition, you are basically “reorganizing” your debt
(like large corporations do when they file under Chapter 11), and you
will have to enter into a Plan to repay part of your debt.

So, qualifying for Chapter 7 of the Bankruptcy Code is very
important to you. At this time, for a household of one the Median
household Income in New York State is $46,320/year. For a
household of two, it is $57,902; for households of 3 or 4 persons it
is respectively $67,174 and $82,164. For households in excess of
4 persons another $7,500 per person are added. The income of all the
persons living in the household who contribute to the household
expenses is considered (even though they are not filing for bankruptcy).

However, if your household income exceeds the median do not
despair yet. Consult a bankruptcy attorney who can analyze your income
and expenses and hopefully help you pass the test. The Means Test
was implemented to curb abuse of the system. If you earn more than the
Median State income and you do not pass the test, you can still file under
Chapter 13 and repay part of your debt.