As a result of the changes to the Bankruptcy Code in 2005 many people are confused about whether they are eligible to file personal bankruptcy.
As a result of credit card and bank lobbying, in 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA). While BAPCA changed the eligibility requirement for personal bankruptcy, the changes for the most part only affect a small minority of people.
Don’t Believe the Hype in the Debt Settlement/Debt Consolidation Ads
The debt settlement/debt consolidation industry, which is based on extensive advertising and high pressure sales tactics, would have you believe that you are no longer eligible to file personal bankruptcy in NY as a result of the 2005 changes in the bankruptcy law.
Nothing could be further from the truth. Every day we help clients from throughout the NY metropolitan area, including Manhattan, Brooklyn, Bronx, Queens, Staten Island, Nassau County, Suffolk County and Westchester County file personal bankruptcy in NY.
The ads that you have seen on TV or heard on the radio are part of a campaign of disinformation and distortion of the truth by the debt settlement/debt consolidation industry to try to gain new business from consumers with debt problems. The Federal Trade Commission (www.ftc.gov) regularly brings lawsuits against companies in the debt settlement/debt consolidation business to get them to “cease and desist” from questionable practices.
While bankruptcy may not be the right solution for everyone’s financial problems, for many people who are in a deep financial hole – being hounded by collectors, sued by collection lawyers, having their wages garnished and/or bank accounts seized, or faced with foreclosure – bankruptcy may be the right solution. The filing stops collections, lawsuit and judgment enforcement and the discharge wipes out debts. Don’t be misled by the debt settlement/debt consolidation industry.
Most People in NY Still Are Eligible for Chapter 7 Bankruptcy
One result of the 2005 amendments to the Bankruptcy Code is that they put into place something called the “means test”. The “means test” is discussed in depth in Quest. 3 “What is the ‘means test’ for chapter 7 and why is it important?” of the Frequently Asked Questions (FAQs) on our website (that you can read by following the link below https://www.starrandstarr.com/personalbankruptcy-ny-faqs.htm).
The basic information regarding the means test is that if your annual income is below the state median income based on your family size you are eligible for Chapter 7 bankruptcy in New York. As of the date of this posting, the median income based on family size is as follows: single $44,587, 2 people family size $54,397, 3 people family size $64,673, 4 people family size $77,664.
So, for example, a receptionist in Manhattan earning $28,000 is clearly eligible for Chapter 7 bankruptcy, so is a secretary in Brooklyn earning $40,000, or a painter in Queens earning $35,000.
People with High Income in New York Will Need to File Chapter 13 Bankruptcy
One of the changes from the 2005 BAPCA amendments is that if a debtor’s income is above the state median (discussed above), he/she has to complete the entire means test, which is a questionnaire form in which the debtor is able to deduct certain expenses against income (primarily based on IRS standards regarding expenses).
We have had a number of clients with income above the median who were still eligible for Chapter 7 bankruptcy in NY because they had significant expenses they were able to offset against income under the means test, such as, secured debt – payment on car loans or home mortgages, child support or alimony, unreimbursed medical expenses, and back taxes.
However, some people with income well above NY State median income will be ineligible for Chapter 7 bankruptcy. Does this mean they can’t file bankruptcy? No, it just means they can’t file Chapter 7 bankruptcy. They are still eligible for Chapter 13 bankruptcy (subject to its eligibility requirements of regular income and certain caps on debt – discussed in a prior posting on this blog), or Chapter 11 (also discussed in a prior posting on this blog).
So, for example, if an ad executive in NY with debt problems earns $100,000 a year and as a result of the means test is ineligible for Chapter 7 bankruptcy, that person can still file Chapter 13 bankruptcy.