Chapter 7 bankruptcy is a common resource for tackling personal debt. It is a four to six-month process that aims to liquidate your assets to settle unsecured debt.
However, there is an income threshold for Chapter 7. If your family income falls below the income limit for your state and family size, you are likely safe. But you must prepare yourself for the secondary means test in case you surpass the income limit. This process scrutinizes your income versus expenses to gauge your actual ability to repay debt.
The entire process of filing for Chapter 7 can be made much easier with the help of foreclosure defense attorneys in New York. To understand these intricacies, continue reading to learn about the eligibility criteria of Chapter 7 bankruptcy, the means test, and factors that may impact income qualifications.
Understanding Chapter 7 Bankruptcy Eligibility
Chapter 7 bankruptcy, often known as straight or liquidation bankruptcy, is a way to eliminate certain debts. However, not everyone can file for it. Before you initiate the process, it is advised to consult a foreclosure lawyer. Moreover, you must meet the following criteria to be eligible:
Your average monthly income over the last six months should be less than the median income for a household of your size in your state. Otherwise, you must take a means test to determine whether you can still qualify.
Many people facing financial struggles are burdened by high-interest debt taken on for essential and unforeseen expenses like unemployment, illness, or divorce. Chapter 7 aims to offer a fresh start by eliminating certain debts, such as credit card debt.
No Substantial Property
Filing for Chapter 7 does not mean losing all of your possessions. Bankruptcy laws safeguard assets like cars, homes, and bank accounts up to specified values. In most cases, individuals can retain these assets.
Highlighting New York’s Specific Income Limits
Each state has varying median income, representing the midpoint where half of the incomes are lower and half higher. It is a dynamic figure determined by the U.S. Census and is subject to regular adjustments. As mentioned earlier, you can skip the means test for Chapter 7 if your monthly household income is less than the average income for a household of your size in New York.
Take an average of your monthly income over the last six months. If your income is initially higher but has decreased in the previous six months, waiting might bring it below the New York median level. Multiply your average monthly income by 12 and compare it to these annual income limits to see where you stand:
- 1 Person: $47,414.00
- 2 People: $59,631.00
- 3 People: $70,151.00
- 4 People: $83,614.00
- 5 People: $91,714.00
- 6 People: $99,814.00
- 7 People: $107,914.00
- 8 People: $116,014.00
- 9 People: $124,114.00
- 10 People: $132,214.00
If your annual income is below the limit for your household size, you meet the requirements for Chapter 7 bankruptcy in New York. Assume you are a family of three. Your calculated average monthly income over the last six months turns out to be below $70,151. Since this is less than the New York median income for a three-person household, you will be eligible for Chapter 7.
Factors Affecting Income Qualifications
When determining your income qualification for bankruptcy, you can deduct certain expenses related to self-employment, like office rent, utilities, equipment, and supplies. Vehicle expenses, including gas and maintenance, are deductible if the vehicle is used for business purposes.
However, it is crucial to recognize that excessive or unnecessary expenses may not be permitted and can affect your income qualifications. Other factors include:
1. Large Family Size
Having a large family with many members can impact your financial situation and influence eligibility criteria for certain benefits or considerations.
2. Elderly Dependents
Supporting one or more elderly relatives who depend on you financially can contribute to increased expenses and may be considered when assessing your overall financial standing.
3. Large Mortgages
Owning a house with substantial mortgage payments can affect your disposable income and financial flexibility.
4. Car Loans or Leases
Two car loans or leases with significant payments can affect your monthly budget and financial stability.
5. Large Amounts of Non-Dischargeable Income Tax Debt
Accumulating non-dischargeable income tax debt may impact your financial situation, as it is a liability that needs to be considered in your overall financial management.
Navigating the Means Test
The “means test” is a step in determining if you are eligible for Chapter 7. If your income is higher than the average for your household size, you use the means test. Here is the process:
- Gather information from your records, like your current monthly income. Income includes money from your job, rental properties, interest, pensions, and more.
- Subtract allowed expenses from your income to calculate the disposable income available
- The total monthly income over the next 60 months directly influences your eligibility:
- If it is less than $7,475, you qualify for Chapter 7 bankruptcy.
- You can not seek Chapter 7 bankruptcy if the income exceeds $12,475.
- An estimation between $7,475 – $12,475 requires additional calculations.
Navigating the means test is crucial for income qualifications in bankruptcy. You can turn to Real Counsel Law Firm’s foreclosure defense lawyers in New York to accurately calculate and understand how the test may impact your eligibility based on your specific financial circumstances.
Exceptions and Legal Insights
A higher income than the average for your family size does not automatically disqualify you from Chapter 7. Hiring a foreclosure lawyer is recommended to understand all of these intricacies. Furthermore, the means test does not strictly determine income eligibility. There are still ways to qualify, even if your income is higher than the state average under special exemptions or waivers. Three notable exceptions include:
1. Disabled Veteran Exception
If you are a disabled veteran with debts incurred during active duty or homeland defense activities, you are exempt from the means test requirement for Chapter 7. One must have a disability rating of at least 30% and should have been discharged from active duty due to a disability sustained during duty.
2. Military Reservists and National Guard
Military reserve or National Guard members may be excused from the means test if they were on active duty or involved in homeland defense activities for at least 90 days. They are exempt from the means test during this period and the subsequent 540 days.
3. Having Non-Consumer Debts
Understanding the difference between consumer and non-consumer debts is crucial. Consumer debts arise from buying goods that are not appreciated. Non-consumer debts are incurred for profit or business benefit. You are not obligated to pass the means test to file for Chapter 7 if over 50% of your debts are non-consumer debts.
Filing for bankruptcy in New York is a complex process that stays on your credit report for over a decade and can affect your credit score. The process involves several legal issues and forms and requires precise knowledge. You may not get the best results without a full understanding of income thresholds, bankruptcy forms, and the Bankruptcy Code.
It all may seem overwhelming and distressing, but it does not have to be. A qualified foreclosure defense lawyer in New York can help you decide whether Chapter 7 bankruptcy is right for you. Get in touch with Real Counsel Law Firm for personalized guidance and financial peace of mind. Our foreclosure lawyers are equipped with the knowledge and experience needed to challenge the foreclosure process effectively. Book a free consultation via video or phone call at a time convenient for you!