If debtors in chapter 7 New York bankruptcy earn a “current monthly income” that if multiplied by 12 exceeds the state’s median family income (~$49,000 for single earners in New York), then they must take the means test to determine if their bankruptcy filings are not abusive. The test, which appears in section 707 of the Bankruptcy Code, essentially requires debtors to compare their debts to an approximate equivalent of five years’ worth of their incomes, minus some deductions. In short, debtors must put together a rough chapter 13 plan. The means test forms for chapter 7 debtors are B 122A, which can be found here. (They’ve been revised recently.)
Multiplying current monthly incomes is fairly easy, but what are the deductions that can keep a debtor in chapter 7? They’re complicated, and they use the IRS’s National Standards and Local Standards. Here’s an explanation (the dollar figures will rise with inflation in the future):
Food, clothing, and other items (National Standards):
- Food
- Housekeeping supplies
- Apparel and services
- Personal care products and services
- Miscellaneous
These can total $585 for one person and $1,092 for a household of two.
Out-of-pocket health-care costs (National Standards):
The IRS (and the means test) separates these costs by the age of each person, under 65 ($60) or 65 and over ($144).
Housing and utilities (Local Standards):
- Mortgage or rent
- Property taxes
- Interest
- Insurance
- Maintenance and repairs
- Gas, electricity, and heating oil
- Water
- Garbage collection
- Residential telephone service
- Cell phone service
- Cable television
- Internet service
The Local Standards list the non-mortgage/rent costs (called “insurance/operating costs” in the bankruptcy forms) for all the counties in each state alongside mortgage/rent charges. For example, in New York County, non-mortgage costs are $1,052 and mortgage/rent is $3,024, compared to $606 and $1,761, respectively, in Kings County (Brooklyn). The Local Standards also rise according to household size.
Transportation expenses (Local Standards):
Debtors who own cars can deduct their operating costs, including for the New York City Metropolitan Statistical Area (which contains counties outside New York State) ($342 for one vehicle in the NYC MSA) along with their ownership costs ($517 nationally). Debtors who do not own a vehicle can deduct public transportation expenses instead ($185).
Taxes:
Debtors can deduct federal, state, and local taxes that aren’t real estate, sales, or use taxes. This line can be very helpful for struggling self-employed debtors.
Involuntary deductions:
This is an unusual category that covers money taken from debtors for non-tax reasons, e.g. retirement contributions, union dues, and uniform costs.
Life insurance:
Debtors are to include monthly life insurance payments for themselves and not dependents.
Court-ordered payments:
These would be spousal or child-support payments.
Education:
The means test divides these into education payments that are necessary for a debtor’s work or the education for a physically or mentally challenged dependent child.
Childcare:
Examples include:
- Babysitting
- Day care
- Nursery school
- Preschool
Optional telephone services:
Cell phones and Internet access are covered in the housing and utilities category discussed above, but debtors can include optional items and services like pagers, call waiting, caller ID, or special long distance. The catch is they must be necessary for a dependent of the debtor or used to produce income if the debtor’s employer doesn’t reimburse the cost. Although some of these items or services may be obsolete, the deduction can help debtors whose employers require them to use these devices but won’t pay for them.
Additionally expenses:
- Health insurance, disability insurance, and health savings account expenses (discussed here)
- Contributions for chronically ill or disabled people in the debtor’s family or household
- Expenditures necessary to protect against family violence
- Additional home energy costs (debtors must explain why this is necessary)
- Education expenses for dependent children under 18 (limited to $156.25 without further explanation by debtor)
- Additional food and clothing expenses (not greater than 5 percent more than the National Standards)
- Continuing charitable contributions
Deductions for debt payments:
This category includes secured, and past-due priority debts. Some of them are divided by 60.
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Debtors add all of these deductions together, and then subtract the totals from their current monthly incomes. This is the “monthly disposable income,” which I wrote about here. This isn’t the end of the means test for debtors, but it is a list of all the deductions debtors can take against their current monthly incomes when they take it.
If you are considering bankruptcy and your income is high enough that you’re concerned about the means test, an experienced New York bankruptcy lawyer can help you organize and maximize your deductions.
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.
