Chapter 13: How NY’s Median Income Affects It

Feeling overwhelmed by debt is a challenging situation. If you’re in New York and concerns like foreclosure or lawsuits are becoming urgent, you might be exploring your options. Chapter 13 bankruptcy is one avenue some people consider, but determining your eligibility can seem complex, especially since a significant factor is your income compared to New York’s median income. This article will explain how New York’s median income affects Chapter 13 eligibility, offering clarity on where you might stand.

What Exactly is Chapter 13 Bankruptcy?

Before examining income levels, it’s helpful to understand Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, where some of your non-exempt assets might be sold to pay creditors, Chapter 13 focuses on reorganization. It is structured for individuals with a regular income who can afford to repay at least a portion of their debts over an extended period.

Under Chapter 13, you propose a repayment plan, which generally lasts three to five years. You make consistent payments to a bankruptcy trustee during this time. The trustee then distributes these funds to your creditors according to the confirmed plan, a process overseen by the bankruptcy court.

A primary motivation for choosing Chapter 13 is to halt home foreclosure, providing an opportunity to catch up on missed mortgage payments. It can also help manage other obligations such as car payments or outstanding taxes. This process offers significant debt relief while allowing you to retain certain assets. Upon filing Chapter 13, an automatic stay immediately stops most collection actions against you and your property, offering crucial breathing room.

Chapter 13 differs significantly from debt settlement programs or debt management plans offered outside of bankruptcy. While those options can be useful for some, Chapter 13 provides legal protections and a structured, court-approved framework for debt resolution. The initial steps involve a filing fee and considerations for attorney fees, which can often be incorporated into the repayment plan.

The Means Test: Your First Big Step

How does the court determine if Chapter 13 is appropriate, or if another chapter is more suitable? This is where the “means test” becomes relevant. The main goal of the means test, a specific bankruptcy form, is to assess if you have sufficient income to make meaningful payments to your unsecured creditors.

This test evaluates your average monthly income for the full six-month period before you submit your bankruptcy petition. It then compares this income to the median income for a household of your size in New York. This comparison is a fundamental initial check in the process of filing bankruptcy.

The bankruptcy code mandates this test to prevent abuse of the bankruptcy system, particularly concerning Chapter 7 eligibility. If your income is considered too high for Chapter 7 liquidation, the means test might direct you toward a Chapter 13 repayment plan. Understanding this test is vital for anyone considering a york bankruptcy filing.

How New York’s Median Income Affects Chapter 13 Eligibility

The concept of “median income” is central here. It represents a statistical midpoint: if all households in New York were arranged by income from lowest to highest, the income of the household precisely in the middle would be the median income. Different median income figures apply based on household size; for instance, a single-person household will have a different median income benchmark than a family of four.

These median family income figures for New York are not static. They are updated periodically by the U.S. Trustee Program, an arm of the Department of Justice, to reflect economic changes. Therefore, the current income figures applicable today might differ slightly in the future. You can typically find the latest median income figures for New York on the U.S. Trustee Program’s website, specifically within their means testing information.

Your income, relative to this state’s median income, dictates the subsequent steps in the means test calculation. This is a critical aspect of how New York’s median income affects Chapter 13 eligibility. Let’s explore what happens if your income is above or below this benchmark, as it directly influences your path through the bankruptcy courts.

If Your Income is Above New York’s Median

If your current monthly income exceeds the New York median for your household size, it doesn’t automatically disqualify you from Chapter 13. Instead, it means you must complete the full, more detailed means test calculation, often referred to as Form 122C-2, “Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period and Disposable Income.” This bankruptcy form requires you to list many of your actual expenses but also uses standardized expense amounts for certain categories set by the IRS, known as National Standards and Local Standards.

The objective is to calculate your “disposable income.” Broadly, this is the money remaining after your necessary and allowable living expenses are subtracted from your income. If your income is above the median, your Chapter 13 repayment plan will generally need to span five years. The amount paid into the plan will be based on this calculated disposable income, ensuring you repay as much as reasonably possible to your unsecured debts.

An income above the median signals a need for more thorough scrutiny and calculations by the bankruptcy trustee. It suggests you might have the financial capacity to repay a significant part of your debts. However, high income can also be accompanied by substantial, legitimate expenses, especially in high-cost areas like parts of New York.

If Your Income is Below New York’s Median

What if your current monthly income is lower than or equal to New York’s median for your household size? This simplifies the means test process somewhat, but it doesn’t guarantee automatic approval for all aspects of the bankruptcy. You generally do not need to fill out the more complex parts of the means test form dealing with standardized expenses; instead, you’d use a shorter version, Form 122C-1.

For individuals below the median income, the Chapter 13 repayment plan is typically set for three years. However, it can be extended up to five years if more time is needed, for instance, to catch up on mortgage arrears or pay off certain priority debts like child support. While you bypass some complex expense calculations of the full means test, you must still demonstrate to the bankruptcy court that you have sufficient regular income to make consistent payments under a proposed plan. This is primarily shown through your budget schedules (Schedules I and J of the bankruptcy petition).

Even if you are below the median, the court and the trustee will still scrutinize your actual income and expenses. They must verify that your proposed plan is feasible and that you are committing all your available “projected disposable income” to the plan for the applicable commitment period. So, while being below the median streamlines part of the means test, your actual budget remains critically important for plan confirmation.

Here’s a table summarizing some key differences:

Feature	Income Above Median	Income Below Median
Means Test Form	Full/Long Form (122C-2) required.	Short Form (122C-1) often sufficient.
Expense Calculation	Uses IRS National/Local Standards & actual expenses.	Primarily based on actual budget (Schedules I & J).
Plan Duration	Typically 5 years.	Typically 3 years (can extend to 5).
Presumption of Abuse (for Ch. 7)	Higher scrutiny if means test indicates abuse.	Lower scrutiny, generally no presumption of abuse.
Disposable Income Calculation	More complex; standardized deductions are significant.	More straightforward based on actual surplus.

Calculating Your Current Monthly Income (CMI)

To compare your income to New York’s median, you must first accurately calculate your “Current Monthly Income” or CMI. This is not simply your earnings from the last month. For bankruptcy purposes, CMI is your average gross monthly income received from almost all sources during the full six calendar months prior to filing your bankruptcy case. So, if you plan to file your bankruptcy petition in July, you would analyze your gross income from January through June; this is often referred to as the “look-back period” or “period prior.”

What counts as income for CMI? The definition is broad and typically includes:

• Wages, salaries, tips, bonuses, overtime, and commissions.
• Net income from operating a business, profession, or farm (after deducting business expenses).
• Interest, dividends, and royalties.
• Net rental income (after property expenses).
• Pension and retirement income.
• Unemployment benefits.
• Regular contributions to household expenses from others, such as a non-filing spouse, unless you can demonstrate you do not have access to these funds for your own expenses. This component contributes to the overall family income considered.

Crucially, benefits received under the Social Security Act are generally not included in the CMI calculation for the means test itself. However, Social Security income is still listed on Schedule I (Your Income) and considered when determining if your proposed Chapter 13 plan is affordable and feasible based on your actual household income and expenses. Calculating your average monthly income accurately is essential, as any significant error could affect your eligibility or plan payments. Your total annual income can be estimated from this, but the CMI focuses on the specific six-month period.

Allowable Expenses: What Can You Deduct?

If your CMI is above New York’s state’s median, you can then deduct certain expenses to determine your disposable income according to the means test formula. This is where the IRS’s National and Local Standards are applied in this expenses test. These standards provide specific dollar amounts for basic living costs, which can vary significantly, especially in diverse areas like New York, from upstate to areas like Brooklyn NY with higher living costs.

Some categories covered by these standards include:

• Food, clothing, personal care, and other household supplies (National Standards).
• Out-of-pocket healthcare costs (National Standards, with allowances for amounts over a certain threshold).
• Housing and utilities (Local Standards, which differ by county or metropolitan statistical area in New York). This includes rent or mortgage, property taxes, insurance, and utilities.
• Transportation costs (Local Standards for vehicle ownership and operating expenses, or public transportation costs, also varying by region).

Beyond these standardized amounts, you can also deduct some of your actual expenses. These frequently include:

• Actual payments on secured debts, such as mortgages for your primary residence and car loans, averaged over the 60-month life of a typical above-median plan. These payments to secured creditors are critical.
• Priority debt payments, like recent income tax obligations or child support and alimony, averaged over the plan’s life.
• Actual costs for health insurance, disability insurance, and necessary term life insurance.
• Certain court-ordered payments, like those for child support.
• Necessary expenses for health and welfare not covered by other standards, or essential expenses for business operation.
• Contributions to qualified retirement accounts, up to certain limits, if payments were consistently made prior to filing.

Correctly calculating these deductions is vital. It can significantly impact whether the means test shows you have disposable income and the amount of that income. Given the nuances, particularly with Local Standards in different New York regions, many individuals find guidance from experienced bankruptcy attorneys invaluable.

Disposable Income: What Does It Really Mean for Your Plan?

After taking your CMI and subtracting all allowable expenses (whether standardized or actual, depending on the category and your above/below median status), you arrive at your “disposable income” for means test purposes. If this figure is positive and exceeds certain statutory thresholds, it generally dictates the minimum amount you must pay to your unsecured creditors each month through your Chapter 13 plan, typically for a five-year plan payments period if you are above median.

However, the means test’s “disposable income” isn’t the absolute final determination of your plan payment. You must also file Schedule I (Your Income) and Schedule J (Your Expenses), which reflect your actual current monthly budget. Your Chapter 13 plan must demonstrate that you are contributing all your “projected disposable income” – as indicated by your actual budget – to your unsecured creditors. Sometimes the income on Schedule I (your current income) differs from your CMI (your historical average income), for instance, if you recently received a raise or experienced a job loss.

If there’s a significant discrepancy between your CMI-based disposable income and your Schedule I/J disposable income, it must be clearly explained. The bankruptcy court and the bankruptcy trustee need to be convinced that your plan is realistic, feasible, and proposed in good faith. Ultimately, your plan payments must be sufficient to cover your secured debt payments (like ongoing mortgage and car payments), priority debts (like recent taxes or domestic support obligations), administrative fees (including the trustee’s percentage and potentially some attorney fees), and then whatever remains is distributed to general unsecured creditors.

What If My Income Changes Drastically?

Life is unpredictable. You might lose your job, face a medical emergency, or experience a significant pay cut after your Chapter 13 plan is confirmed by the bankruptcy court. If your income drops substantially and you can no longer afford your confirmed plan payments, you are not necessarily without options.

You may be able to request a modification of your Chapter 13 plan from the court to lower the payments, reflecting your changed financial circumstances. This often requires demonstrating a substantial and unanticipated change. In some situations, if your financial condition changes drastically and permanently, you might even be able to convert your Chapter 13 case to a Chapter 7 bankruptcy, provided you meet the eligibility criteria for Chapter 7 at that time. Alternatively, if you’ve paid a certain amount into your plan and cannot complete it due to circumstances beyond your control, you might be eligible for a hardship discharge. Each of these options has specific rules and implications for your future income and debt relief, making consultation with your bankruptcy lawyer essential.

Beyond Income: Other Chapter 13 Eligibility Hurdles

While how New York’s median income affects Chapter 13 eligibility is a substantial factor via the means test, it is not the sole determinant for the bankruptcy court. Several other important requirements must be met to qualify for Chapter 13 consumer bankruptcy protection. Failing any of these can prevent you from filing chapter 13 or achieving a successful discharge.

These include:

• Debt Limits: Chapter 13 is available only to individuals (or individuals and their spouses filing jointly), not corporations or partnerships. There are also limits on the amount of secured debt and unsecured debt a debtor can have to be eligible. As of recent updates to the bankruptcy code, these separate limits were replaced by a combined total debt limit for Chapter 13, which is periodically adjusted for inflation. You can find the current figures on official court websites or by consulting bankruptcy attorneys. If your debts exceed these limits, Chapter 11 might be a more appropriate form of bankruptcy. These limits apply to consumer debts primarily.
• Regular Income: You must demonstrate a regular source of income. This doesn’t strictly mean traditional employment. Income can come from self-employment, pensions, Social Security, rental income, or even consistent contributions from family members. The crucial aspect is that the income must be sufficiently stable and regular to allow you to make consistent payments under the proposed repayment plan for its duration. The court will look at your current monthly income and prospects for future income.
• Tax Filings: You are generally required to have filed your federal and state income tax returns for the four tax years preceding your bankruptcy filing date. If you are delinquent on these filings, you will need to prepare and file them before your Chapter 13 plan can be confirmed. Proof of filing these returns must be provided to the bankruptcy trustee.
• Credit Counseling: Before filing your bankruptcy petition, you must complete a credit counseling course from an EOUST-approved agency within the 180 days before you file. After filing, but before receiving a discharge, you must also complete a debtor education course (also known as a financial management course). Certificates of completion for both are required.
• Previous Bankruptcy Filings: There are specific time limitations on how frequently you can file for bankruptcy and receive a discharge. If you have had a prior bankruptcy case dismissed or have received a discharge in a previous case (Chapter 7 or Chapter 13), this could affect your eligibility to file a new case or your ability to obtain a full discharge in a subsequent Chapter 13. These rules are designed to prevent serial filings and ensure good faith among those seeking debt relief. The history of cases filed can impact current options.
• Entity Type: Only individuals or married couples filing jointly can file for Chapter 13. Businesses, other than sole proprietorships where the individual owner is liable for the debts, cannot use Chapter 13 and would look to Chapter 11 instead.
• Bankruptcy Estate and Exemptions: Upon filing, a bankruptcy estate is created, consisting of nearly all your property. While Chapter 13 is not about liquidating assets like Chapter 7, New York bankruptcy exemptions still play a role. Your plan must pay unsecured creditors at least as much as they would have received if your non-exempt assets were liquidated in a Chapter 7 case (this is called the “best interest of creditors” test).

Thus, you can see that the state’s median income is just one checkpoint among several. Each requirement must be met for Chapter 13 to be a feasible path toward financial recovery and debt relief. A bankruptcy lawyer can help assess all these factors for your specific situation.

Median Income is Just One Piece of the New York Bankruptcy Puzzle

It is easy to become solely focused on the median income figure for New York. Indeed, this figure, whether your household income is above or below the state’s median, dictates the path you take through the means test bankruptcy form and often influences the required length of your repayment plan. However, your entire financial landscape is what truly determines the viability and structure of a Chapter 13 plan.

Can you realistically propose a plan that covers your necessary living expenses, maintains current payments on secured debts like your mortgage or car payments, addresses any priority debts (such as recent tax liabilities or child support arrears), and still provides a meaningful distribution to your unsecured creditors? This is the overarching question. Your actual income (current monthly income and projected future income) and actual expenses, as detailed on your budget schedules (Schedules I and J of the bankruptcy petition), play an enormous role in answering this.

Even if your income exceed the median, having high, legitimate expenses – such as large mortgage payments in an expensive area like Brooklyn NY, substantial childcare costs, or significant medical expenses – might mean your actual disposable income is quite low, or even negative according to your budget. In such instances, a Chapter 13 plan might still be confirmable if you can demonstrate that your plan is proposed in good faith and satisfies all other requirements of the bankruptcy code, including feasibility. It simply means more detailed paperwork, thorough documentation, and clear justification will be necessary. This is where working with knowledgeable bankruptcy attorneys from reputable law offices, who understand New York bankruptcy law and how local bankruptcy courts operate, can be particularly beneficial. Many offer a free initial consultation to discuss your circumstances.

Conclusion

Understanding how New York’s median income affects Chapter 13 eligibility is a crucial initial step when you are facing significant debt and considering bankruptcy. If your income is above the New York median for your household size, you will undergo a more detailed means test, which closely examines your ability to repay debt over a five-year period. If your income falls below the median, the initial phase of the means test is simpler, focusing more on your actual budget for a typically three-year plan, though you must still demonstrate the ability to fund a feasible repayment plan.

Remember, this income test is just one component of the overall eligibility criteria for filing Chapter 13. You must also meet specific debt limits, possess a regular income, be current on tax filings, and fulfill credit counseling requirements, among others. Because the interaction of these factors, including the calculation of your average annual income for the means test, can be quite detailed, obtaining advice from a qualified bankruptcy attorney who is familiar with cases filed in New York is a sound approach if you are considering this form of debt relief. Contact The Law Office of William Waldner today at 212-244-2882.