Is My Income Subject to The Chapter 7 Bankruptcy Means Test?

Many Rockland residents would be eligible for some form of personal bankruptcy protection should they choose to pursue bankruptcy to achieve financial stability. However, not every individual will have the same bankruptcy options as others and those options that are available to them may depend on the value of their assets and the amount of their income. Particularly, a person who wishes to use Chapter 7 bankruptcy to alleviate their debt may see their income evaluated under a means test if it is greater than the median income of all New Yorkers.

The means test is applied in order to prevent individuals who have the ability to pay off their debts from benefiting from the Chapter 7 bankruptcy protections. As Chapter 7 bankruptcy uses the liquidation of assets as the method of amassing money to pay off creditors, those who have large enough incomes to pay off their creditors may not actually need the bankruptcy process to overcome their financial obligations.

The Chapter 7 bankruptcy means test is rather technical. The bankruptcy court will look at the aggregate monthly income of the debtor over a five year period. If that amount is more than $12,475 or more than 25 percent of the debtor’s unsecured debt, then the debtor may not be allowed to use Chapter 7 bankruptcy. Other requirements apply and individuals who are concerned that they may be subject to the means test are encouraged to speak with their bankruptcy attorneys about their cases.

A debtor can overcome the means test if they can present a compelling case for needing the Chapter 7 process. As all bankruptcy cases are resolved on their own merits, readers are reminded to seek out their own counsel to learn more about this topic as this post is not intended to provide legal advice.