Means Test – Rochester Bankruptcy and Debt Relief – Rochester, NY Bankruptcy Attorney

Determining Chapter 13 Repayment Plan Payment

If debtor does not qualify for Chapter 7 bankruptcy, that debtor is likely to qualify for Chapter 13 bankruptcy. The most important issue for anyone filing Chapter 13 is to know is how much their Chapter 13 Plan payment will be. In my opinion, given the typical 5 year duration of Chapter 13, properly set plan payment is the most important factor in whether the case will be a success.

Determining the amount of the payment can be challenging at the very beginning of the case. Early estimates of plan payment can change significantly as more information becomes available.

Generally, there are four tests applicable to determining the amount of the Chapter 13 Plan payment:

The Chapter 13 Means Test (officially, the “Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period and Calculation of Your Disposable Income”);
The Disposable Income Test;
The Chapter 7 Liquidation Analysis Test; and
The Required Payments Test

The Chapter 13 Means Test was imposed when BAPCPA became law in 2005. The Means Test’s purpose is to determine whether debtor’s Plan would be 3 years or 5 years long, and to have an objective way to determine the amount of the payment. This calculation uses one of the established four methods of determining your Chapter 13 Plan payment.

The Disposable Income Test is the only one of the four tests that is strictly based on debtor’s ability to pay. Initially, debtor’s net household income is calculated and from that figure, debtor’s actual reasonable monthly expenses are subtracted. The resulting number–disposable income–is Chapter 13 Plan payment. That calculation does not include a deduction for the debts that will be paid through the Chapter 13 case, such as mortgage arrears, car loan payments, student loan payments, tax payments, and credit card bills.

In the Chapter 7 Liquidation Analysis Test, bankruptcy attorney looks at how much debtor’s general unsecured creditors (typically credit cards, medical bills and personal loans) would receive in a hypothetical Chapter 7 case. In many cases, they would receive zero, because there are no non-exempt assets with equity, and creditors would get nothing in a Chapter 7 case. The total amount of payments under Chapter 13 plan can’t be less than the amount determined under the Liquidation Analysis Test.

The last test is the Required Payments Test. Usually, priority debt, such as recent taxes and domestic support obligations, must be paid in full during the course of the Chapter 13 case. Mortgage and other secured debt arrears must also be paid in full, along with unpaid attorney fees, trustee commissions and (in most cases) at least a nominal amount to the general unsecured creditors. Add these payments up, and you reach the Required Payments.

After all of the numbers under each test have been calculated, debtor is required pick the highest amount, which becomes the plan payment. At the same time, that figure may change during the case as creditors submit their proofs of claim, as debtor’s income, expenses and assets change. This figure may also change depending on trustee’s view of the debtor’s financial circumstances.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Henrietta, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Changes to the Bankruptcy Means Test as of May 15, 2015

Once again, the means test figures for median income are being changed as of May 15, 2015. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to increase.

Through May 14, 2015, a single debtor in New York could have $48,840 in income in income and still be able to file Chapter 7 Bankruptcy. Starting May 15, 2015, that figure has been increased to $49,632. Similar increases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$48,840 $60,743 $71,706 $88,156

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$49,632 $61,728 $72,869 $89,586

* Add $8,100 for each individual in excess of 4.

While the increases are not large, they are an improvement on the last set of income limits. The reason for a slight growth in the median income is the slight growth in the earnings of an average American family. Since the economy is struggling to recover,employees wages having been increasing slowly. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

It should be noted that even if the debtor’s income exceeds the means test figures, debtor may still qualify for Chapter 7 bankruptcy after all allowable expenses are taken into account.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Changes to the Bankruptcy Means Test as of April 1, 2013

Once again, the means test figures for median income have changed as of April 1, 2013. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to increase.

Through March 31, 2013, a single debtor in New York could have $46,821 in income in income and still be able to file Chapter 7 Bankruptcy. Starting April 1, 2013, that figure has been increased to $47,790. Similar increases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,821 $58,106 $67,652 $81,522

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$47,790 $59,308 $69,052 $83,209

* Add $7,500 for each individual in excess of 4.

While the increases are not large, they are an improvement on the last set of income limits. The reason for a slight growth in the median income is the slight growth in the earnings of an average American family. Since the economy is down, employers do not give employees significant wages increases. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

Upcoming Changes to the Means Test Figures

Once again, the means test figures for median income are changing as of November 1, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2011, a single debtor in New York could have $46,295 in income in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2011, that figure is decreasing to $45,931. Similar decreases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,295 $57,777 $68,396 $83,942

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,931 $56,113 $66,953 $81,212

* Add $7,500 for each individual in excess of 4.

While the decreases are not large, they are going to make it more difficult for some individuals and families to qualify for Chapter 7 bankruptcy.

The figures used for the each state’s median income are based on United States Census data, and adopted by the Office of the United States Trustee. Usually, these figures are adjusted based upon the Consumer Price Index (CPI) for All Urban Consumers once or twice per year.

When the economy is growing, typically income rises because of the cost of living increases, inflation and other reasons. When the economy is not growing, income actually decreased from the prior year. As a result, the means test is adjusted and lower median income figures are used which make it more difficult for debtors to qualify for Chapter 7 Bankruptcy.

Treatment of Social Security Benefits in Chapter 13 Bankruptcy

I have previously written that Social Security income, whether retirement, survivor benefits, SSI or Social Security disability are not included in debtor’s income for the purposes of means testing. While not included in the means test figures, do the debtors have to include such payments in their Chapter 13 Bankruptcy plan and use that income toward making their plan payments?

According to a decision from the Bankruptcy Court for the Northern District of New York, a Chapter 13 Plan can be confirmed despite not including Social Security retirement income. In In Re Burnett, together with its companion case, In re Uzailkos, the proposed payment plans did not include social security income on Schedule I. As filed, the Burnett plan projected paying usecured creditors 10% of their claims, Uzailko’s plan proposed to pay creditors 37%.

Because social security income was not included, the Burnett’s Schedule I income exceeded Schedule J expenses by $493,67. If social security was included, the income available for repayment would increase by $878 to $1,371.67. For Uzailko, the available payment amount would increase $400.25 to $1,496.25.

The Chapter 13 Trustee filed objections to both plans arguing that the cases were not filed in “good faith” because social security income was not included in calculating the minimum plan payment. A “good faith” objection is the general objection to confirmation of a Chapter 13 Plan. Under the Bankruptcy Code Section 1325(a)(3), a plan which fails to pay this disposable income minimum can be denied confirmation on the grounds the debtor’s plan was not filed in good faith.

Social security income different from other forms of income under BAPCPA. Under BAPCPA, Section 101(10A) was modified to exclude Social Security benefits from the the Chapter 7 Bankruptcy means test and the Chapter 13 Bankruptcy disposable income test.

After reviewing different lines of cases addressing these issues, the court accepted the reasoning in a series of cases that held that the treatment of social security income in BAPCPA’s disposable income test precluded requiring a chapter 13 debtor to apply social security income in a plan. Accordingly, as there were no other ‘bad faith’ factors in Burnett and Uzalko cases, the judge confirmed the plans over the trustee’s objections.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Upcoming Changes to the Means Test

Once again, the means test figures for median income are changing as of March 15, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to increase.

Through March14, 2011, a single debtor in New York could have $45,548 in income in income and still be able to file Chapter 7 Bankruptcy. Starting March 15, 2011, that figure is increasing to $46,295. Similar increases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,548 $56,845 $67,292 $82,587

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,295 $57,777 $68,396 $83,942

* Add $7,500 for each individual in excess of 4.

While the increases are not large, they are an improvement on the last set of income limits. The reason for a slight growth in the median income is the decline in the American economy. Since the economy is down, employers do not give employees significant wages increases. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

Upcoming Changes In the Means Test

Once again, the means test figures for median income are changing as of November 1, 2010. Unfortunately, for a lot of jurisdictions it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2010, a single debtor in New York could have $46,320 in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2010, that figure is dropping to $45,548. Similar declines will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,320 $57,902 $69,174 $82,164

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,548 $56,845 $67,292 $82,587

* Add $7,500 for each individual in excess of 4.

While the income limit for a family of four has gone up slightly, for smaller families, the income limit has declined. For a family of three, the income limit will decline by nearly two thousand dollars.

The reason for a reduction in the median income is the decline in the American economy. Since the economy is down, employers pay less and employees earn less. As a result, the American median family income has dropped once again. As the income declined, so do the income limits for Chapter 7 Bankruptcy. The unfortunate problem resulting from the recession is that as debtors make less money and have more financial problems, it becomes harder for them to qualify for Chapter 7 Bankruptcy.

Does the Debtor Need to Be Employed to File Chapter 7 Bankruptcy?

It is not necessary to have a job to file for Chapter 7 Bankruptcy. In fact, the filing of Chapter 7 Bankruptcy is probably one of the few instances in the debtor’s life where it helps the debtor not to be working.

One of the basic requirements of the Chapter 7 Bankruptcy is that the debtor must show that he or she does not sufficient income available to pay their creditors any money under Chapter 13. Whether the debtor has sufficient income that would require him to be in a Chapter 13 Bankruptcy or in a Chapter 7 Bankruptcy is determined though by the “Means Test.”

A simple explanation of the Means Test is as follows. The Means Test takes the debtor’s income for the six month before the filing of a bankruptcy and compares that income to the average income for a person in the debtor’s state with the same family size. As an example, in New York, where I practice, if a single debtor makes $46,320.00 per year or less, he qualifies to be in a Chapter 7 Bakruptcy. So someone who is not working can file under Chapter 7.

The above is only a part of the Means Tests requirements since the amount of income is only a beginning when the means test calculations are done. Other factors and calculations also have to be considered when making a decision under which Chapter of the Bankruptcy Code the debtor should file .

Sometimes, the debtor can benefit from a loss of a job, usually in a situation where he earns more than the median income for his State, after the loss of the job, once a sufficient period of time passes, the debtor’s average monthly income will be reduced and the debtor will qualify for Chapter 7 Bankruptcy.

The only time the debtor needs a job to file for bankruptcy is when he is filing for a Chapter 13 Bankruptcy.

Do Both Spouses Have to File for Bankruptcy Together?

While most married people think that if they file for Chapter 7 bankruptcy or Chapter 13 Bankruptcy, they must do so with their spouse. That is not true.

Whether one spouse or both file a bankruptcy petition, it’s their choice. It is not uncommon for one spouse to have most of the debt in his or her name only, in which case an individual filing would more appropriate. However, if both spouses are have a significant amount of debt, they should file together.

Sometimes I meet with only one spouse because the other spouse is is not willing to file for bankruptcy. In these situations, one spouse to file the bankruptcy petition and obtain necessary relief from the bankruptcy court.

There are also some additional issues that need to be considered. Initially, if only one spouse is filing and the couple is residing together, the other spouse’s income may be relevant for the purpose of household income as reflected on Schedule I, resulting disposable income reflected on Schedule J, and that spouse’s income may also be relevant for the means test.

As far as the means test, it is necessary to determine whether there is a presumption that there is enough disposable income available to give unsecured creditors sufficient payment under a Chapter 13 bankruptcy plan, such that permitting a Chapter 7 could be considered an abuse of discretion. But even if the means test is passed, and no presumption of abuse arises, or, alternatively, if this is a non-consumer bankruptcy and the means test is not even required, abuse can still be found given the totality of the circumstances. The income and assets of the non-filing spouse are important in both those considerations. If the debtor has legal rights to share in the income and assets of a non-filing spouse or even if the practice has been between spouses to share income and assets regardless of legal rights, the bankruptcy law tells us that the debtor’s access to the non-filing spouse’s income and assets has to be considered in deciding whether the bankruptcy court would permitting a Chapter 7 bankruptcy filing.

An experienced bankruptcy attorney can analyze each consumer’s financial situation and suggest whether a married couple should file an individual or a joint petition.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Should You Hire a Bankruptcy Lawyer?

Some of the major reasons why people who know they need to file for bankruptcy, but postpone doing so, is fears about filing either Chapter 7 or Chapter 13 Bankruptcy, and concern about paying the legal fees.

Some debtors consider filing bankruptcy on their own. However, this can be a major mistake and can create additional problems. As I have written about previously, bankruptcy involves a number of procedural and substantive steps and tests that have to be satisfied before the bankruptcy court can grant a discharge.

In both Chapter 7 and Chapter 13 bankruptcy cases, the debtor must appear before a court-appointed trustee for a 341 hearing. The bankruptcy trustee who conducts the hearing is not someone who is there to help the debtor. His role is just the opposite. The trustee is charged with investigating the debtor and his financial circumstances to determine if there are any assets available for thee benefit of creditors. Meeting with an experienced bankruptcy attorney will enable the debtor to have his or her financial situation reviewed and assets protected in advance to the extent possible.

What debtors may not realize is that certain types of financial transactions that may have taken place years before filing can have a major impact on the debtor’s bankruptcy. For example, if any significant assets were given away or if real estate was transferred, this may amount to what is known as a fraudulent conveyance or a preference, and may result in significant litigation in the bankruptcy case. Usually, a bankruptcy lawyer will review these issues before a bankruptcy petition is filed in order to mitigate the risk.

While the bankruptcy petition is written in plain English, it is a difficult document to prepare for someone who is not familiar with the Bankruptcy Code. A complete petition in a Chapter 7 Bankruptcy in New York, including all of the various forms and schedules runs in excess of 40 pages. The petition requires preparing numerous schedules and budgets. The debtor must list appropriate information about his debts, assets, income and expenses.

The Statement of Financial Affairs includes numerous questions that must be answered. All of the debtor’s creditors must be listed not only in a schedule of debts (segregated in three separate categories) but also in a special format called a Matrix. Such listing must include creditors’ names, addresses, account numbers, dates when any debts were incurred and their purpose.

When Congress passed BAPCPA in 2005, it imposed many new requirements. The most significant of those requirements is a complex and complicated means test, as well as the requirement for mandatory credit counseling. The Chapter 7 trustee as well as the Office of the U.S. Trustee reviews each and every petition to make sure all of the requirements under the new law are properly met. The means test is complicated, and the debtor’s failure to properly prepare the bankruptcy means test can create significant problems as the United States Trustee can seek to have the bankruptcy case dismissed.

The debtor must also choose which Chapter of bankruptcy to file. If a debtor is seeking to stop foreclosure and cure mortgage arrears, a Chapter 7 Bankruptcy filing won’t be helpful. At the same time, a Chapter 13 Bankruptcy filing is likely to result in a 3-5 years payment plan.

There are self-help books that explain how a debtor can prepare and file his petition and complete the process. However, there are many traps for the unwary that even attorneys who do not regularly practice bankruptcy often create problems for their clients.

Every bankruptcy trustee I know in Rochester, New York, has expressed concern about those debtors who file bankruptcy without an attorney because these debtors often make serious procedural and substantive mistakes. Self-representation by pro-se debtors in bankruptcy matters can end up being a mistake, and result in further financial problems for the debtor.