What Qualifies You for Bankruptcy?

What Qualifies You for Bankruptcy?

If you’re a New York resident struggling with debt, you may be asking yourself: what qualifies you for bankruptcy? In other words, how do you know if you’re eligible to file under Chapter 7 or Chapter 13 of the Bankruptcy Code? In this comprehensive guide, we’ll break down the legal and financial qualifications for bankruptcy in New York in plain English. We’ll cover the Chapter 7 vs. Chapter 13 eligibility criteria, define key terms like the means test, noncontingent debt, and disposable income, discuss special life events (job loss, medical bills, divorce) that can affect your case, and explain New York-specific rules such as income thresholds and exemption choices. By the end, you’ll have a clearer idea of whether you qualify for bankruptcy and what your next steps should be.

Important: Every situation is unique. This article is for general information and NYC bankruptcy eligibility guidance. To get advice tailored to your circumstances, consider reaching out for a free consultation with an experienced New York bankruptcy attorney (more on that at the end of this post).

Bankruptcy Eligibility Basics in New York

Bankruptcy is a federal legal process, but there are some local rules and numbers that vary by state (we’ll get to New York specifics shortly). First, let’s outline the basic qualifications that apply to anyone considering personal bankruptcy:

• U.S. Residency or Business Presence: To file bankruptcy in the U.S., you must reside, have a business, or own property here law.cornell.edu. New York residents or those owning property in NY meet this requirement.

• Credit Counseling Requirement: Before filing any bankruptcy case, individuals must complete a brief credit counseling session with an approved agency within the 180 days prior to filing law.cornell.edu. (This course can often be done online or by phone and typically takes an hour or two.)

• Chapter Choice: Consumers generally file either Chapter 7 or Chapter 13 bankruptcy. Businesses may file Chapter 7 or Chapter 11, but Chapter 13 is only available to individuals (and couples) – not companies. We’ll focus on personal Chapter 7 and 13 here, since those are the options for regular New York residents.

• Prior Bankruptcy Discharge Wait Periods: If you’ve filed bankruptcy before, there are time limits on receiving a new discharge. For example, after a Chapter 7 discharge, you must wait 8 years to get another Chapter 7 discharge. After a Chapter 13 discharge, there’s typically a 2-year wait to file another Chapter 13, or 4 years to file Chapter 7. These rules don’t bar you from filing again sooner, but you wouldn’t be eligible for a discharge (the debt wipe-out) unless those time periods have passed. Your attorney can clarify how this might apply to you.

• No Recent Dismissals for Cause: If a prior bankruptcy case was dismissed in the last 180 days because you violated a court order or requested dismissal after a creditor sought relief from the stay, you may be temporarily ineligible to refile law.cornell.edulaw.cornell.edu. This is an uncommon issue, but worth noting.

In short, if you live in New York (or have property here), complete the required counseling, and haven’t run afoul of the above issues, you’ve cleared the initial hurdles. The next question is which type of bankruptcy you qualify for – Chapter 7 or Chapter 13. Each has specific eligibility rules, especially regarding your income and debts, which we’ll explore next.

Chapter 7 vs. Chapter 13: What’s the Difference in Qualifications?

Chapter 7 and Chapter 13 serve different purposes and have different qualification criteria. In Chapter 7 bankruptcy, a trustee can liquidate (sell) non-exempt assets to pay creditors, but most cases are “no-asset” cases where you keep everything you’re allowed to exempt. Chapter 7 is designed for people with limited income who can’t afford to repay much, if anything, to creditors. Chapter 13 bankruptcy, on the other hand, is a reorganization where you propose a 3- to 5-year repayment plan to catch up on debts or pay a portion of what you owe. Chapter 13 is often chosen by those who have steady income and want to protect assets that might be non-exempt in Chapter 7 (like a home with substantial equity), or for those who don’t pass the Chapter 7 means test.

Key differences in qualifications:

• Income Requirements: Chapter 7 has an income threshold test (means test) to ensure the filer truly can’t afford to pay creditors, whereas Chapter 13 requires enough income to fund a repayment plan. We’ll explain the means test in detail below.

• Debt Limits (Chapter 13 only): Chapter 13 is only available if your debts are under certain limits. Chapter 7 has no debt limit.

• Who Can File: Almost anyone (individuals, couples, corporations) can file Chapter 7 if eligible, but only individuals (and married couples) can file Chapter 13. Businesses must use Chapter 11 for reorganization.

• Prior Bankruptcy Restrictions: Both chapters have waiting periods after previous discharges as noted earlier, but one notable rule – you cannot receive a Chapter 13 discharge if you got a Chapter 7 discharge in a case filed less than 4 years prior.

Let’s dive deeper into each chapter’s specific qualifications.

Chapter 7 Bankruptcy Qualifications

Chapter 7 is often called “straight bankruptcy” or “liquidation bankruptcy.” To qualify for Chapter 7 in New York, you’ll need to pass the means test (unless an exception applies) and meet a few other criteria:

• Means Test (Income Limit for Chapter 7): The means test is a formula Congress created to keep high-income earners from abusing Chapter 7. It compares your income to the median income in your state and evaluates your “disposable income” (income minus certain allowed expenses) to see if you could afford to pay some of your debt. If your income is below the New York median for your household size, you automatically pass the means test and qualify for Chapter 7 based on income. If it’s above, you might still qualify, but you’ll have to complete a more detailed calculation of expenses and income. A presumption of abuse arises if the formula shows you have too much disposable income available to pay creditors law.cornell.edu. In that case, you’d be steered toward Chapter 13 or your case could be dismissed.

  What is the “Chapter 7 income limit” in NY? There’s no single dollar cutoff for everyone. It depends on your household size and the current median income figures for New York. As of April 2025, for example, the annual median income for a household of one in NY was about $68,795 (roughly $5,568 per month) justice.gov. For a household of two, it was about $89,052 per year justice.gov. These figures are periodically adjusted. If your average gross income for the past 6 months is below the median for your family size, you pass – about 90% of people who file bankruptcy fall under the median and qualify for Chapter 7 based on income alone. If you’re above median, don’t panic: you then subtract allowed expenses (like food, rent, utilities, taxes, etc.) to determine your disposable income.

  Disposable income is essentially the money you have left over each month after paying your necessary living expenses. In bankruptcy terms, it’s your monthly income minus “allowed” expenses as defined by IRS guidelines and the Bankruptcy Code. If, after those deductions, your disposable income is very low, you can still qualify for Chapter 7 even with a higher-than-median gross income. On the other hand, if you have significant disposable income, the court will likely find that granting Chapter 7 would be an “abuse” of the system law.cornell.edu, and you’d be expected to use Chapter 13 to repay some debt.

  New York note: The means test allowances for expenses (like cost of housing, utilities, etc.) are tied to local living costs. Given that the NYC metro area has a high cost of living, many necessary expenses are higher, which can help reduce your disposable income on the means test. For example, the allowed rent/mortgage expense for Manhattan or Brooklyn will be much higher than for a small town upstate. A New York bankruptcy attorney can crunch these numbers for you, but just know that earning above the median doesn’t automatically disqualify you – it just means a second step in the analysis. (Additionally, if your debts are not primarily consumer debts – for instance, mostly business-related debts – the means test does not apply. Most folks considering personal bankruptcy, however, have mainly consumer debts like credit cards, loans, and medical bills.)

• Financial Hardship: Aside from the formal means test, Chapter 7 is intended for people in financial hardship. If you clearly can’t pay your debts, you likely meet this requirement. Occasionally, the bankruptcy trustee or judge can dismiss a Chapter 7 case for “bad faith” even if you pass the means test – for example, if someone with high income artificially took deductions to squeeze through. But such cases are rare. Generally, passing the means test qualifies you.

• No Chapter 7 in Recent Years: As mentioned, you can’t receive a Chapter 7 discharge if you obtained one in the past 8 years. If you filed a Chapter 7 case 5 years ago, you technically could file again now, but you wouldn’t get a discharge, so it usually doesn’t make sense to file in that situation. (The timing is measured from the filing dates of the cases.)

• Primarily Consumer Debts: If your debts are primarily consumer debts (personal, family, household debts), the means test applies. If your debts are primarily business debts, you may qualify for Chapter 7 without a means test. This can be a nuance for some – for example, a self-employed person whose personal credit cards were used for business expenses might have an argument that the debts are business-related.

Definition – Means Test: To summarize in plain language, the means test is a two-part analysis to decide if you have enough “means” (income) to repay creditors. The first part compares your income to the New York median income justice.gov. The second part, if needed, deducts standardized expenses and some actual expenses to see what your monthly disposable income is. If your disposable income over 5 years would be above a certain amount (around $10,000 total, or $167 per month, with some conditions law.cornell.edu), then Chapter 7 relief is presumed abusive. The means test formula is codified in 11 U.S.C. § 707(b) of the Bankruptcy Code law.cornell.edu. This law essentially says if you can afford to pay a portion of your debt (e.g. at least 25% of unsecured debts, or a threshold dollar amount), you may be pushed out of Chapter 7 law.cornell.edu. There are exceptions and special circumstances that can be argued (more on “special circumstances” below). The bottom line: many New Yorkers with modest incomes, or high expenses, do qualify for Chapter 7 after the full analysis.

• Credit Counseling: As with any filing, you must complete the pre-filing counseling course (and later a financial education course before discharge). Failing to do so can disqualify your case, but this is an easy requirement to meet in most situations.

If you qualify for Chapter 7, this route can provide a fresh start by discharging most unsecured debts (credit cards, personal loans, medical bills, etc.) typically in as little as 4 to 6 months. Secured debts (like car loans or mortgages) you’d either continue paying if you want to keep the collateral, or surrender the collateral to discharge the debt. Some debts like recent taxes, child support, and student loans are not dischargeable, but that’s beyond our scope here.

Internal link suggestion: For more details on what happens to property in Chapter 7, check out our guide “NY Bankruptcy Exemptions Explained,” which covers the assets you can keep through the process.

Chapter 13 Bankruptcy Qualifications

Chapter 13 is often called a “wage earner’s plan” or reorganization bankruptcy. It’s designed for individuals who have regular income and want to repay an adjustable portion of their debts over time (3 to 5 years) under court protection. So, do you qualify for Chapter 13 bankruptcy in New York? Ask yourself the following:

• Regular Income: You need a steady income or reliable source of earnings to fund a Chapter 13 repayment plan. This doesn’t mean you must be traditionally employed – self-employment, Social Security, pension, child support, even unemployment benefits can count, as long as it’s money you can count on monthly. The court will require you to propose a plan with monthly payments, so you must show you can make those payments. There’s no specific income minimum or maximum (indeed, high earners who fail the Chapter 7 means test often use Chapter 13). The key is that your disposable income should be sufficient to make meaningful payments to creditors once you cover your living expenses. Essentially, if you have enough income to pay your necessary bills and still have some left over, Chapter 13 might be a feasible option for you.

• Debt Limits: Unlike Chapter 7, Chapter 13 has strict limits on the amount of debt you can have. As of 2024, the limits (which adjust periodically for inflation) reverted to approximately $526,700  in total unsecured debt and $1,580,125 in total secured debt law.cornell.edu. Unsecured debts include things like credit cards, medical bills, personal loans without collateral. Secured debts include mortgages, car loans, or other loans where an asset is collateral. These limits are per debtor; if you’re filing jointly with your spouse, you typically combine your debts for the total. If your debts exceed these amounts, you do not qualify for Chapter 13 and would have to consider Chapter 11 instead, or possibly Chapter 7 if appropriate. (Note: These figures are set by law under 11 U.S.C. § 109(e) law.cornell.edu. For many years the limits were lower and updated every 3 years for inflation law.cornell.edu, but there have been recent temporary changes. Always check current limits with your attorney – for instance, there was a recent two-year period where the limits were a combined ~$2.75 million, but that has expired and the lower caps above are in effect as of now.)

  Definition – Noncontingent, Liquidated Debt: The debt limits refer to “noncontingent, liquidated” debts. Noncontingent means the debt is not dependent on some future event. For example, if you cosigned a loan that hasn’t defaulted yet, that contingent liability might not count. Most debts you owe and are liable for today (credit cards, loans, judgments) are noncontingent. Liquidated means the amount is known or can be readily determined. A disputed or not-yet-determined claim might be considered unliquidated if the exact amount isn’t established. In practice, for most people, all their normal debts are noncontingent and liquidated. This usually only comes up in unusual scenarios. If you have a very large disputed claim (say, someone sued you and it’s not resolved, or you have potential liability that hasn’t been fixed in amount), talk to a lawyer about whether it counts toward the Chapter 13 limits.

• Up to Date on Tax Filings: Before your Chapter 13 plan can be approved, you’ll need to have filed your past four years of tax returns (and provide copies to the Chapter 13 trustee). Falling behind on taxes doesn’t bar you from filing, but you’ll be required to get those returns in. This is more of a procedural requirement than a qualification, but it’s important because the court won’t confirm your repayment plan until your tax filings are current. Many people file Chapter 13 specifically to help pay off tax debts, so just know you’ll need to get returns filed (if you haven’t) early in the process.

• Only Individuals (and Sole Proprietors): Chapter 13 is only open to individuals. Corporations or LLCs cannot file Chapter 13. However, if you are a sole proprietor, you and your business debts (since you are the business legally) can be included in your personal Chapter 13 case. This is common for freelancers, gig workers, or small business owners – you might file Chapter 13 to reorganize both personal and business obligations, as long as you as a person are the debtor.

• Good Faith Proposal: You must propose a plan to repay creditors in good faith, committing your disposable income over a 3- or 5-year period. In Chapter 13, disposable income has a similar concept as in Chapter 7 means testing – it’s what’s left after you pay allowed expenses for your household. The difference is, in Chapter 13 all that disposable income should go into your plan payments for the benefit of unsecured creditors nolo.com. In fact, there’s something called the “best efforts” or disposable income test in Chapter 13: you must pay at least all your projected disposable income into the plan for a minimum of three years (or longer if your plan is five years) nolo.com. So if you have a lot of disposable income, you’ll be repaying a larger portion of your debts in Chapter 13. If you have very little, your plan might pay only a small percentage of the debt. Either way, to qualify for confirmation, your plan payment should basically equal your monthly disposable income. An experienced attorney will help calculate a feasible plan. The key point is you need some income to spare; if every dollar you earn is needed for basic expenses, Chapter 7 might be more appropriate.

In summary, you qualify for Chapter 13 if: (1) your secured and unsecured debts are below the limits law.cornell.edu, (2) you have a steady income to fund a repayment plan, (3) you’re an individual (or married couple) debtor, and (4) you are willing to devote your disposable income to repay creditors over several years. Chapter 13 can be very powerful – it can stop a foreclosure and let you catch up on a mortgage, restructure car payments, and even discharge some debts that wouldn’t be dischargeable in Chapter 7 (like certain older tax debts or marital debts other than support). But it is a longer commitment (usually 60 months for many New Yorkers, because if your income is above the state median, the law requires a 5-year plan).

Internal link suggestion: For a deeper dive into how Chapter 7 and 13 differ in practice (not just qualifications but outcomes), see our article “Chapter 7 vs Chapter 13 in NYC” which compares the two options side by side.

Special Circumstances That Affect Eligibility (Job Loss, Medical Bills, Divorce, etc.)

Life events often drive people toward bankruptcy. Some of these situations can also affect how you qualify:

• Job Loss or Income Reduction: Losing your job or having your hours cut can suddenly make you eligible for Chapter 7 when you might not have qualified before. Because the means test looks at your last 6 months of income, a recent job loss might not immediately show up in the calculation – but there are strategies (like waiting a couple of months to file, if possible) to ensure your lower income is reflected. Unemployment income counts in the means test, but it’s often much lower than your previous earnings. If you can’t find a new job quickly, Chapter 7 can give relief from debt while you’re between jobs. In Chapter 13, a job loss can actually disqualify you if you no longer have income to fund a plan, or it can force conversion of a pending Chapter 13 case to Chapter 7. One tip: if you know a layoff is coming and you have a lot of debt, talk to a lawyer before you exhaust any severance or retirement cash-out – it might be advantageous or necessary to file sooner to protect certain assets or to qualify while your average income is lower. Conversely, if you just got a high-paying job, that could push you over the median income – but remember, the means test is backward-looking. If you were underemployed for a while, you might still qualify for Chapter 7 based on that recent history, even if your new salary is higher (though the U.S. Trustee might scrutinize future ability to pay).

• Medical Bills and Medical Issues: Medical debt is a leading cause of bankruptcy nationwide. A sudden medical crisis can leave you with overwhelming bills, even if you have insurance. The good news is that medical bills are unsecured debts that are generally dischargeable in bankruptcy. If huge medical debt has made you insolvent, you likely qualify for Chapter 7 (assuming income is now limited) because these debts can be wiped out. In means test terms, a serious illness might reduce your income and increase certain allowed expenses (e.g. ongoing healthcare costs), helping you qualify. Furthermore, the law explicitly acknowledges serious medical conditions as a potential “special circumstance” to adjust the means test law.cornell.edu. For example, if you have high costs for a chronic illness or a disability that aren’t adequately captured by the standard expense allowances, your attorney can argue to include those so that your disposable income is calculated more fairly. In Chapter 13, if medical bills are a big chunk of your debt, you might pay only a small percentage of them through a plan and discharge the rest. Also, medical issues could justify a lower plan payment or even a plan modification if health problems arise during your case. Bottom line: don’t hesitate to seek bankruptcy relief due to medical debt – it’s very common, and exactly what bankruptcy is meant to help with.

• Divorce or Separation: A divorce often wreaks havoc on finances. You move from one household to two, legal fees pile up, and you might be stuck with debts that you and your ex-spouse accumulated together. In New York, many divorced individuals turn to bankruptcy for a fresh start. How does divorce impact “qualifications”? First, your household size and income change – after a separation, you may qualify for Chapter 7 because your household income is now just yours (or yours plus any support you receive) rather than a combined figure. It’s not uncommon for a married couple to be over the means test threshold, but post-divorce each individual might qualify for Chapter 7 on their own. Secondly, certain debts from a divorce can be discharged in Chapter 13 (though alimony and child support cannot be discharged in any chapter). For instance, if you agreed to take responsibility for a joint credit card in the divorce, that is a debt you can wipe out in bankruptcy (even though your ex might still owe the bank, you’d eliminate your liability and the divorce agreement’s hold harmless clause would typically be viewed as a dischargeable property settlement debt in Chapter 13). From an eligibility standpoint, paying alimony or child support can count as an expense that reduces disposable income for the means test, helping you qualify for Chapter 7. On the flip side, receiving alimony counts as income. If divorce has left you with more debt than you can handle, you’ll likely meet the financial hardship criteria for bankruptcy. Just be careful to coordinate timing if you’re considering bankruptcy during a divorce – it may be wise to consult a bankruptcy lawyer and possibly file jointly before divorce, or separately after, depending on what’s most beneficial.

• Other Special Factors: The Bankruptcy Code allows filers to claim “special circumstances” that justify adjustments to the means test calculation law.cornell.edu. Examples given in the law include a call to active military duty (if you’re a service member) or a serious medical condition law.cornell.edu. But it’s not limited to those. Other potential special circumstances might be a sudden necessary expense (e.g. caring for an elderly parent, necessary home repairs, or other unusual expenses) that reduce your disposable income. You have to provide documentation and a good explanation, and the court will only accept it if it truly makes your situation exceptional law.cornell.edu. Additionally, certain debt situations can affect chapter choice: for instance, if most of your debt is student loans, you technically qualify for bankruptcy but you won’t discharge those loans absent an undue hardship proceeding. Or if you have a large amount of priority debt (like recent taxes), Chapter 7 won’t wipe those out, but Chapter 13 could give you time to pay them off. While these don’t change your eligibility to file, they change the strategy. That’s why discussing your specific mix of debts and circumstances with an attorney is crucial.

In all these scenarios, a knowledgeable attorney can advise how to time and structure a bankruptcy filing to maximize your relief. For example, if you recently lost a job, they might advise you to wait a couple months so your 6-month income average drops; if you have an upcoming surgery and more bills, maybe file after that to include those debts; if you’re in divorce proceedings, coordinate so that bankruptcy and divorce don’t conflict.

New York-Specific Rules: Income Thresholds and Exemptions

Bankruptcy is federal law, but each state has its own median income figures for the means test and its own property exemption laws. New York has some important specifics:

1. New York Median Income (Means Test Figures): We discussed the income thresholds for Chapter 7 – those are based on Census data for each state. New York’s median incomes are typically higher than the national average due to higher living costs. As noted, as of April 2025 a single filer’s annual median was around $89,052, and for a family of four it was about $134,443 justice.gov. These numbers usually adjust twice a year (in April and November). If you’re close to the line, it’s worth checking the latest figure. Passing the means test in New York might be a bit easier than in some states with lower medians, but remember, even if you’re over the median, New York’s higher cost of living means you likely have higher allowed expenses which can reduce your disposable income for the test.

2. New York vs. Federal Exemptions: One unique aspect of New York bankruptcy law is that you have a choice between using the New York state exemption statutes or the federal bankruptcy exemptions (but not both). New York is among the states that allow debtors to choose either system splawpc.com. This is crucial for protecting your property. Exemptions determine what assets you can keep in bankruptcy – like a certain amount of equity in your home, car, personal belongings, etc. You must pick one set of exemptions and stick with it; you can’t mix and match waldner exemptions. The right choice depends on your assets:

• Homestead (Home Equity) Exemption: New York’s homestead exemption is generous compared to the federal one, especially in downstate counties. If you own a home or condo, New York allows you to exempt $102,400 of equity per filer in a home in most of the state waldner exemptions. But if you live in NYC (Bronx, Kings (Brooklyn), New York (Manhattan), Queens, Richmond (Staten Island)) or Nassau, Rockland, Suffolk, Putnam, Westchester counties, the homestead exemption is $204,825 per filer . Married couples filing jointly can each claim it if the property is jointly owned, effectively doubling those amounts (e.g. a couple in Queens could protect $341,650 of equity). By contrast, the federal homestead exemption is about $31,575 per filer library.nclc.org. Clearly, homeowners in New York City or Long Island will often opt for the state exemption to protect much more home equity. (Note: NY CPLR § 5206 is the state law providing the homestead exemption, which was historically $10,000 decades ago law.justia.com but has been updated by statute to the higher amounts above.)

• Motor Vehicle Exemption: New York allows you to protect up to $5,500 of equity in one motor vehicle (car, motorcycle, etc.) waldner exemptions. If you have a disability, the exemption increases to $13,625 for a vehicle equipped for your disability needs. The federal vehicle exemption is slightly lower, at $5,025 per filer library.nclc.org (as of 2025 adjustments). These numbers are relatively close, but New York gives a small edge for a basic car. If a married couple jointly owns a car, they might be able to double the exemption to $10,100 in NY.

• Wildcard and Personal Property: New York’s exemptions for personal property (like furniture, electronics, clothing, jewelry, etc.) have various category limits, but an important concept is the “wildcard” exemption. The wildcard can be used to protect cash or any property if you do not use the homestead exemption. In New York, if you don’t use a homestead exemption (say you’re a renter), you can exempt up to $6,825 of any personal property plus up to $1,325 of cash or cash equivalents waldner exemptions under CPLR 5205. Additionally, New York Debtor & Creditor Law § 283 provides a supplementary cash exemption of up to $6,825 if no homestead is used waldner exemptions. In practical terms, a non-homeowner in NY can protect about $6,850 in cash/savings ($5,700 + $1,150) and still have another $1,150 in personal property wildcard (and remember, there are separate specific exemptions for things like clothing, tools of trade, etc., and an aggregate cap of around $11,375 on most personal property categories)waldner exemptions. By comparison, the federal wildcard is much larger: roughly $17,475 per filer if no homestead (made up of a base $1,675 wildcard plus up to $15,800 of unused homestead that can be applied to any property)library.nclc.org. This means a renter with savings might prefer federal exemptions to protect more cash. For example, under federal exemptions you could keep $17,475k in the bank, whereas NY exemptions might only cover about $6.8k of that. On the other hand, that same renter might not need the big wildcard if they don’t have much cash but own a car – New York’s car exemption is fine – or have expensive professional tools (NY covers tools of trade up to $4,000, etc.). It’s a balancing act.

• Other Notable New York Exemptions: New York CPLR 5205 lists many items as exempt from creditors, which apply in bankruptcy if you choose NY’s scheme law.justia.com. These include things like necessary clothing, furniture up to a certain value, one TV, one computer, wedding rings (up to $1,150), books ($575), domestic animals with food for 120 days ($1,100)waldner exemptions, and 90% of earned but unpaid wages (for wages earned in the last 60 days)waldner exemptions. Also, most retirement accounts, like 401(k)s and IRAs, are protected (either by federal bankruptcy law or New York law) – IRAs up to about $1.7 million are exempt under federal law library.nclc.org, and NY law fully exempts pensions and tax-deferred retirement accounts as well. New York also has an unlimited exemption for the cash surrender value of a life insurance policy if you’ve owned it long enough (or up to a certain amount if not). By contrast, federal exemptions have their own list of categories with set values library.nclc.org. For example, federal exemptions specifically protect $1,875 of jewelry library.nclc.org, $3,175 of tools of trade library.nclc.org, etc.

In summary, New York gives you a choice: use New York exemptions (generally better if you have substantial home equity or certain property) or use federal exemptions (often better if you have no home but maybe have more cash or miscellaneous assets). You are allowed to choose the system that protects the most assets in your case. Many NYC filers with homes choose New York’s; many renters choose federal – but not always, so it’s something to review with counsel. (Readers interested in a deep dive can refer to our “NY Bankruptcy Exemptions Explained” article for a detailed breakdown of each exemption.) found at waldner exemptions

One more New York-specific note: New York does not allow you to discharge student loans in state court (no state student loan relief law), so bankruptcy (a federal process) is the only avenue to try for a student loan hardship discharge. However, that requires a separate lawsuit within the bankruptcy (an adversary proceeding) and a very tough standard to meet. This affects whether bankruptcy will help you if your debt problem is primarily student loans – often it won’t fully, unless you meet the undue hardship criteria or just need to discharge other debts to focus on student loans.

Example Scenarios: Who Qualifies and Who Doesn’t

Sometimes it helps to see how these rules play out in real life. Let’s look at two hypothetical New Yorkers:

Example 1: Maria – Possible Chapter 7 Candidate
Maria is a single mother living in Brooklyn with her two kids. She has about $30,000 in credit card debt and $15,000 in medical bills from an unexpected surgery last year. Maria recently lost her job, and her only income right now is $2,000/month in unemployment benefits and $500 in child support. She rents an apartment and has no real estate. She owns a 7-year-old car worth $5,000, which she needs to get to potential new jobs. Maria is worried she can’t keep up with minimum payments.

Qualifying analysis: Maria’s gross income ($2,500/month, or $30,000/year) is below New York’s median for a household of three (approx $105k/year)justice.gov, so she immediately passes the Chapter 7 means test. Even if we counted her earlier employed months, the average might still be under the median or just slightly over – but her necessary expenses (rent, utilities, food for three, etc.) would certainly use up most of her income, leaving very little disposable income. She clearly cannot pay her debts. She has no prior bankruptcies and completed her credit counseling. She qualifies for Chapter 7.

What about her assets? Using New York exemptions: because Maria rents, she doesn’t need a homestead exemption. She can use the state wildcard: protect her $6,000 car with the $5,500 vehicle exemption plus $500 of wildcard perhaps, and use remaining wildcard to cover a small savings account if she has one. Under federal exemptions, she’d have $5,025 for the car and a large wildcard that could cover the rest easily. Either way, her property can be fully exempt. Chapter 7 would wipe out her credit card and medical debt, giving her a fresh start to focus on getting re-employed and taking care of her kids. Maria is a prime candidate for Chapter 7 relief.

(Who wouldn’t qualify in Maria’s situation?) If Maria had a high-paying job and earned, say, $8,000/month, she might not qualify for Chapter 7 because her income would be above median and she might have considerable disposable income to pay creditors. In that case, Chapter 13 could be an option instead.

Example 2: David – Chapter 13 Needed
David lives in Manhattan and works in finance, earning about $150,000 a year. He has a high salary, but also high expenses (rent, student loan payments, etc.) and unfortunately racked up $100,000 in credit card debt and personal loans during some bad investment ventures and living beyond his means. He’d like to file bankruptcy to clear that debt. He doesn’t own a home, but he has a leased car and some stock investments worth $20k. He filed a Chapter 7 eight years ago right after college (due to medical bills back then).

Qualifying analysis: David’s income is well above the NY median for a single household. On the means test, his six-month average income ($12,500/month) far exceeds the threshold ($5,568/month)justice.gov. After deducting standard expenses (even with NYC’s high rent allowance, etc.), let’s say the means test shows he has $2,000 of monthly disposable income. The means test would deem it an abuse for him to get a Chapter 7 discharge because over 60 months that disposable income could pay $120k, which is enough to fully pay his $100k unsecured debt (in other words, he has the ability to repay)law.cornell.edu. So he likely does not qualify for Chapter 7 – the U.S. Trustee would move to dismiss his case for abuse under 11 U.S.C. § 707(b)law.cornell.edu. However, David does have a stable income and wants relief from the debt. Chapter 13 is his route.

In Chapter 13, debtors above median must do a 5-year plan and pay their disposable income. David’s ~$2,000/month disposable income would go into his plan. Over 5 years, he’d pay $120,000, which would actually completely pay off his $100k debt (plus  trustee fees). So his creditors would be fully paid – which is why Chapter 7 wasn’t allowed – but Chapter 13 gives him protection from lawsuits and collections while he repays, and he could potentially get a discharge of any remaining unpaid portion (if, for example, he had some unexpected additional debts or the trustee’s commission reduces the payout). He also might be able to get a slightly lower payment if he can justify certain expenses. Importantly, he must keep paying his student loans during or after, since those won’t be discharged, but clearing the credit cards will free up cash for that. David is eligible for Chapter 13 because his debts are under the limits (100k unsecured is below $526,700) law.cornell.edu. If David’s debt was, say, $600,000 in personal loans, he’d actually be over the Chapter 13 unsecured debt limit and would have to consider a Chapter 11 filing instead – an example of someone who doesn’t qualify for Chapter 13.

(Another scenario:) Suppose someone had a very high income and very large debts. For instance, Jane owns a business and personally guaranteed $3 million of business loans. Her business failed. She earns $250,000/year now. She would not pass a Chapter 7 means test (high income) and she also exceeds Chapter 13 debt limits (owe $3 million > $1.39M secured/$465k unsecured) – she wouldn’t qualify for Chapter 13. Jane’s option would likely be Chapter 11 (a complex individual Chapter 11 case) or trying to negotiate privately with creditors. This is an uncommon situation for consumers, but it shows that not everyone can fit into Chapter 7 or 13.

These examples show that even if you don’t qualify for one chapter, you might qualify for another. And even if you technically qualify, there may be strategic reasons to choose one over the other. For instance, Maria qualified for Chapter 7 – the quick discharge is great for her. David didn’t qualify for 7, but Chapter 13 gives him a structured way out.

Take the Next Step: Get a Free Consultation with a NY Bankruptcy Attorney

Determining “what bankruptcies you qualify for” can be complicated, but you don’t have to figure it out all alone. The bankruptcy means test, debt limits, and exemption choices involve a lot of numbers and legal rules. The good news is that an experienced New York bankruptcy attorney can quickly evaluate your situation and tell you which chapter (Chapter 7 vs Chapter 13) you qualify for, and which one makes the most sense for you.

At Midtown Bankruptcy Law (a hypothetical example for context), we offer free consultations to New York City-area residents. During your consultation, we will:

• Review your income, expenses, and debts to see if you pass the means test for Chapter 7 upsolve.org. If you’re on the edge, we can explore allowable expenses or timing strategies to help you qualify. If Chapter 7 isn’t possible, we’ll explain how Chapter 13 could work for you.

• Analyze your debts to ensure they’re under the Chapter 13 limits law.cornell.edu if that route is needed, and discuss any special debts (like recent taxes or child support) that a Chapter 13 plan could address.

• Look at your assets and guide you on choosing between federal or New York exemptions so that you keep as much of your property as possible during bankruptcy waldner exemptions. We’ll make sure you understand what is protected – in most cases, people keep all their assets.

• Answer all your questions in plain English. Bankruptcy can actually be a very positive solution to a debt problem, and we want you to feel informed and confident. We know it’s a big step, but remember that bankruptcy laws are designed to help honest people get a fresh start – it’s even in the U.S. Constitution! You’re not a bad person for considering it; you’re taking control of your financial future.

Contact us today to schedule your free consultation with an experienced New York bankruptcy attorney. We’ll help you understand if you qualify for Chapter 7 or Chapter 13, what the process involves, and how it can relieve your stress and debt burden. Whether you’re dealing with credit cards, medical bills, a foreclosure, or just endless collection calls, relief is available under the law. Take the first step toward financial freedom – call us or fill out our online form to get started. We’re here to help New Yorkers regain control of their finances and move forward with hope.

(Remember, this post is for general informational purposes. For advice on your personal situation, consult with a qualified attorney.)