Can Mortgage Arrears be Deducted on the Bankruptcy Means Test in New York City?

Mortgage arrears can most certainly be deducted on the Chapter 7 bankruptcy means test in New York City, but it can be very tricky.  If you are not careful you could find yourself with a problem if you deduct your mortgage arrears without the assistance of an attorney.  There is a lot to consider, and you need to be prepared for the likely arguments that will come from the bankruptcy trustee.

If your disposable monthly income is determined to be enough to repay your unsecured creditors you will not automatically qualify for Chapter 7 bankruptcy.  You will need to take the bankruptcy means test if you have a higher disposable income than is allowed.  The test calculates your disposable income with your monthly expenses and allowable deductions against national and local standards for living expenses.  These deductions and expenses lower disposable income, allowing even high income debtors to pass the means test.  Some deductions can be extremely helpful towards passing the means test including any mortgage arrears that may have been building for months or possibly even years.

If this idea has occurred to you already, you are definitely on the right track for passing the means test.  However, if your back payments have been building for a long time and you try to deduct these arrears on the means test it might appear as though you had no real intention of keeping the home.  The trustee could very likely argue this, and fight you on the deduction of your mortgage arrears.  If the trustee wins this argument, you might be forced into filing Chapter 13 instead of Chapter 7.  At that point the Chapter 13 trustee might also object to the deductions.  If this happens the monthly payments towards your Chapter 13 plan will increase, and the deduction of your mortgage arrears will not have been helpful.

Done properly deducting mortgage arrears from the means test can be very helpful, but is best left to a professional.  As they say, don’t try this at home.  Find a qualified bankruptcy attorney experienced in converting Chapter 7 cases to Chapter 13 cases.  Many bankruptcy mills are only interested in filing Chapter 7 cases.  If you live in New York City contact the Law Offices of William Waldner online or at 212.244.2882 to arrange a free bankruptcy consultation today.  We only practice bankruptcy law and maintain a 99% Chapter 7 bankruptcy discharge record in New York City as of 8/31/16.
**** DISCLAIMER:  This article is intended for educational purposes only.  By reading no attorney-client relationship has been created.  Prior results do not guarantee a similar result for future clients.