What Is the Chapter 7 Bankruptcy Means Test?

Queens Chapter 7 Bankruptcy Lawyer

If you are interested in filing for Chapter 7 bankruptcy, you must first pass the means test to determine if you are eligible for this type of relief. Implemented into the US Bankruptcy Code in 2005, the means test works to identify whether or not you have the “means” to pay off your debts. If you pass this test, you qualify for relief, but if you don’t, you may have to prove to a judge that you experienced special circumstances that caused your expenses to increase or income to decrease.

So, how do you pass the means test?

Your monthly income within the past 6 months of filing must fall below the median income for households of the same size in New York. To give you a better idea, the median household income by family size for bankruptcy cases filed between April 1, 2021 and May 14, 2021 in New York is:

• 1-person household: $60,696
• 2-person household: $77,159
• 3-person household: $92,508
• 4-person household: $112,424

So, if you and your spouse earn a total annual income of $60,000 in New York, you pass the means test because your income falls below the state average. However, if you and your spouse’s total annual income is $85,000, then your eligibility for Chapter 7 bankruptcy may be jeopardized. As we mentioned before, you would have to show unique circumstances that caused your expenses to rise or your income to fall. These special circumstances typically only apply to debtors who cannot pay their expenses in a reasonable time period.

How to Complete the Means Test

The Chapter 7 bankruptcy means test is a way to “filter out” the debtors who make enough money to pay their debts from those who cannot afford to do so. As such, debtors who are seeking financial relief under Chapter 7 of the Bankruptcy Code must complete a series of forms called the “122A forms,” which include:

• Official Form 122A-1 (Chapter 7 Statement of the Current Monthly Income): Regardless of your income level, you must complete Form 122A-1 because it determines whether your current monthly income is below the state average for households of the same size in New York. If your monthly income is below the state average, you’re done. You can file for Chapter 7 bankruptcy.
• Official Form 122A-1Supp (Statement of Exemption from Presumption of Abuse Under § 707(b)(2)): You should fill out this form if your debts do NOT primarily include consumer debts or you served in certain military or homeland defense roles. To verify that one of these exemptions applies to your situation, you should complete Form 122A-1Supp and complete Part 3 of Form 122A-1 (above) to verify. If none of these exemptions apply, then you do not need to fill out this supplemental form but instead should complete each section of Form 122A-1 and file it individually.
• Official Form 122A-2 (Chapter 7 Means Test Calculation): This form is the means test. After filing Form 122A-1, you will learn whether or not you qualify for an exemption and your current monthly income is above the state average. If you do not qualify for an exemption and your income is income above the state average, then you must take the means test. The means test will take into account your income, living expenses, and certain debt payments to determine your means to pay other debts. If you are found to be unable to pay those debts, then you can file for Chapter 7 bankruptcy.

Guidance Through the Means Test, One Step at a Time

The paperwork and calculations involved in the means test can be complicated, and one miscalculation or other error could ultimately result in a poor outcome. The last thing you need is to disqualify for Chapter 7 bankruptcy because of a simple mistake. An experienced, detail-oriented lawyer can help you navigate the process with ease, leaving no stone unturned.

For legal assistance through the means test and Chapter 7 bankruptcy process altogether, contact the Law Office of Seni Popat, P.C. online or at (718) 340-3385!