I recently wrote about the means test deductions in chapter 7 and threw in specific numbers for New York bankruptcy. I haven’t written precisely on what happens next, so now’s a good opportunity.
For review, the means test itself can be found in section 707(b)(2). Debtors take the means test if their “current monthly incomes” times twelve exceeds their state’s median family income. Current monthly income is just the debtor’s average income from all sources over the previous six months. Then, debtors must subtract all their means test deductions to derive their “monthly disposable incomes,” but that’s not the end. There are a few more steps.
The debtor multiplies the monthly disposable incomes by sixty, and then there are three paths from here.
Path number one: If the amount is less than $7,475 then the debtor passes the means test and there is no presumption of abuse.
Path number two: If the amount is between $7,475 and $12,475, then there’s more math. Debtors must find their total nonpriority unsecured debts, and multiply them by 0.25 (25 percent). Debtors’ whose monthly disposable incomes times 60 is less than this amount pass the means test. For debtors whose income calculation exceeds 25 percent of their nonpriority unsecured debts, there is a presumption of abuse.
Path number three: If the amount exceeds $12,475, then there is a presumption of abuse. There are no further mathematical operations debtors can use to pass the means test.
However, all is not lost for debtors who fail the means test yet want to remain in chapter 7. Debtors can assert that their situations include “special circumstances” according to section 707(b)(2)(B). The Bankruptcy Code explicitly cites a “serious medical condition” and a “call to active duty in the Armed Forces,” but there can be others. There must be no reasonable alternative to the added deductions that the special circumstances warrant.
Debtors must, under oath, itemize each additional expense the special circumstances create, and they must provide a detailed explanation of them to the court. Special circumstances must be sufficient to help debtors pass the means test, so the circumstances must be decisive.
Obviously, though, debtors who fail the means test can convert their cases to another bankruptcy chapter, and others might simply be filing to prevent a foreclosure and don’t care so much about the means test. For everyone else, there’s no reason to go to the trouble of filing Form 122A–2 stating they’ve failed the means test if they can help it. That’s why discussing your case, especially if it’s a marginal one, with an experienced New York bankruptcy lawyer can help you get it right the first time.
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 Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
