Lacking health insurance is almost always a bad idea. People who are injured can end up borrowing large amounts of money that they can’t manage, but there’s one situation in New York bankruptcy where lacking health insurance might not be an impediment: Debtors who don’t have health insurance might still be able to deduct it if they have above-median incomes when filing in chapter 7.
Normally, chapter 7 debtors whose incomes are above the median family’s for the state in which they reside must take the “means test.” This requires them to prove to the bankruptcy court, and whichever party initiated the motion, that their filings are not abusive. The process for doing so is set out in Section 707(b)(2) of the Bankruptcy Code. Debtors must show that their “current monthly incomes”—less certain reductions—multiplied by 60 is greater than one of two thresholds discussed here.
Of interest here are these certain reductions, which are covered in the following three subsections of the law. The first one states that “The debtor’s monthly expenses … shall include reasonably necessary health insurance, disability insurance, and health savings account expenses.” These expenses are among the reductions referred to in the means test.
At this point one would think that the statute is meant to apply only to debtors who already have health insurance, and thanks to the Affordable Care Act, which has started its sixth year, many more Americans have health insurance than when the means test was incorporated into the Bankruptcy Code in 2005. However, uninsured debtors might benefit as well.
The Advisory Committee on Bankruptcy Rules wrote a comment to the form used by debtors to work through the means test, and it concluded that the necessity of actual health insurance expenditures by the debtor is ambiguous. On the one hand, the statute could be read to treat health insurance as it treats “food, clothing and personal care expenses,” which are calculated without regard to the debtor’s actual expenditures.” On the other hand, it’s possible that health insurance is limited to the category of “Other Necessary Expenses,” which are actual expenditures by the debtor. The bankruptcy forms resolve the problem by including a line asking debtors how much they actually spend on health insurance.
(Link to the form here (pdf, but it might take a while to load) and the advisory committee’s notes here (pdf).)
As you can see, this is a curious way to put together a form, but it does allow debtors without health insurance to deduct it to pass the means test. Indeed, there can be valid reasons to do so, like a debtor who’s lost employer-provided health insurance but hasn’t yet purchased a new policy. Creditors might challenge the reduction, but that’s why you want an experienced New York bankruptcy lawyer handling your case.
For answers to more questions about medical expenses, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 7 Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
