Whenever people looking into New York bankruptcy hear about the median family income for their state, they usually think that it has something to do with chapter 7. Generally, this hunch is correct. Petitioners with incomes above the state median, after adjusting for family size, will have to take the means test. If they fail it, then they must file in chapter 13 or chapter 11.
Chapter 13, however, does have a use for the state’s median family income. Obviously, it’s not related to eligibility, but it does affect the duration of the debtor’s repayment plan. Thus its role is quite important for many would-be debtors. The section of the Bankruptcy Code in question is 11 U.S.C. § 1322(d).
The first section says that if the debtor’s family income is not less than the median family income, depending on the family size, then the debtor’s repayment plan may last up to five years. That is, debtors whose incomes are above the state’s median can stay in chapter 13 as long as the law allows. However, § 1325(b)(4) requires the plan for such debtors to last five years, so in truth, debtors with above-median incomes must propose a five-year plan.
The second section says that if the debtor’s family income is less than the state’s median, then the repayment plan can only last up to three years. This means that the Bankruptcy Code doesn’t want debtors with low incomes to stay in chapter 13 for extended periods. It helps that in most of these circumstances, they can probably file in chapter 7. One situation a debtor might find this advantageous is stripping junior liens from discharged underwater mortgages, a strategy discussed here.
Debtors with incomes below the state’s median aren’t out of luck if they want a longer repayment plan. The statute allows them to request that the bankruptcy court approve a longer period “for cause.” This means the debtor needs a good reason to try to extend the repayment plan beyond three years. In New York bankruptcy, the debtors with below-median incomes regularly get 3-5-year plans approved; it’s common practice. The court still cannot approve a plan that lasts longer than five years, though.
Importantly, in both calculations, a spouse’s income also counts toward the family income, which is usually to a debtor’s advantage. New York’s median family numbers have been revised for cases filed after November 1, 2014. A single-earning debtor must have an income at or below $48,840 to avoid the chapter 7 means test. Incomes must be higher to obtain a chapter 13 repayment plan that lasts more than three years without showing cause to the bankruptcy court. A family of two raises the figure to $60,743, and they go higher from there. The means test numbers for all states and territories can be found here.
Median family income doesn’t play the role in chapter 13 that it does in chapter 7, but it can affect the length of the repayment plan. When deciding how to proceed you’re well-advised to hire an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankrutpcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
