Most individuals or couples filing for protection under either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy are required to meet certain income eligibility requirements under the “Means Test.”
Under the Means Test, you must first determine if your average monthly income for the last six months is below the median income for your state, based upon the size of your household.
If your average monthly income for the past six months is below the median income in New York, you have passed the first hurdle, and so long as you meet the other eligibility requirements, you can file for protection under Chapter 7 Bankruptcy.
If your average monthly income for the past six months is above the median income in New York, you must proceed to the second hurdle – do you have the ability to repay a portion of your debt?
The second hurdle is the determination of your ability to repay a portion of your debt. Under the law, you are required to perform an analysis of your income and expenses (based upon certain Internal Revenue Service guidelines) – the Means Test..
With respect to expenses, some expenses are deducted on a dollar for dollar basis, others on an allocation basis, based upon family size and county of residence. The largest single deduction on an allocation basis for renters has always been housing/shelter expense.
Prior to November 1, 2011, renters who reside in Nassau and Suffolk Counties were required to deduct a ridiculously low amount for shelter expense as compared to homeowners who have mortgage obligations.
As of November 1, 2011, the playing field for Long island renters has now been leveled. Housing allowances for Nassau and Suffolk County residents have increased by 30% on average
The following is a chart of comparing the allowances:
Household 1 2 3 4
Pre Post Pre Post Pre Post Pre Post
Nassau County 1545 2027 1814 2300 1911 2508 2131 2796
Suffolk County 1385 1806 1626 2121 1715 2235 1911 2492
The net effect of this change is that, even if your income is above the median for the State, residents of Nassau and Suffolk Counties has been provided with an additional $6,000.00 allowance based upon the cost of housing on Long Island. This can make the difference between qualifying for Chapter 7 Bankruptcy and discharging all of your dischargeable debt and filing for Chapter 13 Bankruptcy and having to devote all of your net disposable income to a repayment plan of up to five years.
If you have been previously advised that you are “on the border” to qualify for Chapter 7 Bankruptcy, it’s time to look again and see if you qualify under the new housing allowances.
Special Note: Means Test Allowances are updated every six months. The above allowances will only apply to cases for between November 1, 2011 and April 30, 2012.