19 Mar Understanding the Chapter 7 Means Test for Queens Residents
Are you overwhelmed by debt and wondering if Chapter 7 bankruptcy can provide relief? Many Queens residents have questions about the Chapter 7 Means Test – a crucial assessment that determines whether you can eliminate most debts through Chapter 7 or if Chapter 13 bankruptcy (with its structured repayment plan) will be more appropriate for your situation.
Making sense of bankruptcy qualifications doesn’t have to be a source of stress. A knowledgeable New York bankruptcy attorney can evaluate your financial circumstances and guide you toward the most beneficial solution for your needs.
The decisions you make today about bankruptcy will impact your financial future – don’t leave them to chance. Schedule a private consultation with our team to analyze your income, expenses, and unique circumstances. We’ll help you understand exactly where you stand with the Means Test and create a clear path forward toward financial freedom.
What Is the Chapter 7 Means Test?
The Chapter 7 Means Test is a two-step process created by federal law to make sure that people who can afford to repay some of their debts do so under Chapter 13 instead of wiping them out completely under Chapter 7. Essentially, the Means Test looks at your average monthly income and certain allowable expenses. If you end up with too much disposable income after these allowable expenses, you might not qualify for Chapter 7.
Under The Bankruptcy Reform Act of 2005, anyone seeking Chapter 7 relief must pass this test. It might sound scary, but the test is simply a calculation that looks at your household size, your income, and your living costs.
Why Does Income Matter?
The first part of the Means Test is sometimes called the “median income test.” The law compares your median monthly income (over the past six months) to the median income for a family of your size in New York.
- If your income is below the state median, you usually qualify for Chapter 7 without jumping through extra hoops.
- If your income is above the state median, a presumption of abuse might arise. This presumption suggests you could possibly pay back some of your debts rather than wipe them out through Chapter 7. But this does not mean you automatically fail the Means Test. You move to the second part of the test, which looks at your allowed expenses and disposable income.
How Is Disposable Income Calculated?
The second part of the Means Test takes your current monthly income and subtracts certain allowable expenses. After these subtractions, the amount left is called your “disposable income.” If your disposable income is too high, the law assumes you could put some of that money toward paying your creditors in a Chapter 13 plan.
In this second part, you must be very accurate about your monthly bills, such as rent or mortgage, car expenses, food, and even some medical costs. Mistakes here can make it look like you have more money left over than you truly do, so you want to be sure you get everything right.
What Counts as an Allowable Expense?
This is one of the most common questions people ask. In short, allowable expenses are specific costs that the law lets you deduct from your monthly income. These include housing, transportation, health insurance, certain taxes, and other necessary living expenses.
The guidelines come from both federal and local standards. For people living in Queens, allowable expenses will reflect regional costs and the U.S. Trustee Program’s guidelines.
If you list every eligible expense, you may find your leftover income is far lower than it first appeared. That can help you pass the Means Test and qualify for Chapter 7. On the other hand, if the leftover number is still high enough that you can repay some of your debts, then the law generally steers you toward Chapter 13 instead.
Does the Means Test Affect Foreclosure?
Filing Chapter 7 can sometimes help you catch a break from foreclosure, but it does not automatically fix the issue if you are behind on your mortgage. The automatic stay that comes with any bankruptcy does stop foreclosure proceedings for a while. However, if you want to save your home permanently, you often need to be up to date on your mortgage payments or work out another solution, like a loan modification.
If you are at risk of losing your home, a Queens foreclosure defense lawyer can examine your mortgage, your financial situation, and your goals to find the best path forward. Sometimes, Chapter 7 is the answer, especially if you want to wipe out other debts so you can focus on paying your mortgage. Other times, Chapter 13 may be better for catching up on missed mortgage payments.
Do I Have to Take the Means Test If I Own a Small Business?
Yes, most individuals seeking Chapter 7 protection must complete the Means Test. Even if you run a small business, your personal income and expenses still come into play if you are filing Chapter 7 personally. The test will still compare your income (which may come from the business) and your allowed expenses. If you pass the Means Test, you can proceed with a personal Chapter 7, which may help you manage or eliminate some of your personal debts.
What Are the Key Steps for Passing the Chapter 7 Means Test?
Below are the core steps for passing the Chapter 7 Means Test:
- Gather Your Income Documents: Collect pay stubs, bank statements, and tax returns for at least the past six months.
- Determine Your Household Size: Include all individuals who share income or expenses in your home.
- Compare to Median Income: Check the current state median income for a household of your size in New York.
- Calculate Allowable Expenses: Carefully list all qualified living costs.
- Find Your Disposable Income: Subtract expenses from your average monthly income.
- Consult a Queens Bankruptcy Lawyer: Our Queens bankruptcy attorneys can confirm your calculations and discuss any special factors that might apply.
These steps will help you know if you pass the Means Test and can file Chapter 7.
What Happens If I Fail the Means Test?
If you “fail” the Means Test because your disposable income is too high, it usually means the law believes you can afford to repay some portion of your debts. You may consider filing Chapter 13 instead. Chapter 13 involves making payments to creditors over three to five years. It is sometimes a good option for people who have stable income but just need a better payment plan to catch up on their debts.
In some special cases, you may argue that you have unique expenses that were not part of the standard formula. If the court accepts your argument, you might still qualify for Chapter 7. This is something you should definitely discuss with a Queens bankruptcy lawyer if you find yourself in that situation.
Ready to Get Started? Contact Our Queens Bankruptcy Lawyers Today!
If you are in Queens and want to learn more about the Chapter 7 Means Test, reach out to Poltielov & Habib, LLP for a consultation. A Queens bankruptcy lawyer from our team will walk you through the process, explain every detail in plain language, and work with you to decide the best course of action. Don’t let confusion about the Means Test or fear of losing your home prevent you from getting the relief you deserve.
Call (718) 520-0085 or contact us online now to schedule your free, confidential consultation and discover how we can help you achieve a brighter financial future.