Why is the Bankruptcy Means Test So Generous for People Living in Manhattan?

While Queens and Brooklyn are also in the top five, Manhattan is far and away the most expensive place to live in the United States according to the Community and Economic Research’s 2013 cost of living index.  The cost of living is actually twice the national average, and because it is so high, the bankruptcy means test is generally regarded to be very generous for people living in the New York City.  Everything is outrageously expensive here and competition for housing and employment is fierce.  It’s not unusual for people living in Manhattan earning well into the six figures to still be struggling with debt.  It makes sense when you consider the average rent is $3,434/month (according to the New York Post) and that a trip to the market for a dozen eggs and a gallon of milk can easily cost you $20. 

Under the new Bankruptcy Abuse and Consumer Protection act of 2005 filers now earning more than the New York state average income for a household of their size must pass the “bankruptcy means test” in order to qualify for chapter 7 or chapter 13 bankruptcy.  The test is meant to prevent abuse of the system and will determine whether or not a bankruptcy petitioner has enough disposable income in their monthly budget to repay their debts.  The means test is a series of complex calculations that takes into account the petitioner’s last 6 months of earnings as well as provided exemptions given by the state or Federal government for living expenses and secured debt payments that are deducted from the monthly budget.  The court wants to know the petitioner’s financial situation to see if they truly lack the money to repay their creditors and really need the bankruptcy relief they are asking for.

What this means for struggling people living in Manhattan is that even if you are a single filer that is making much more than the median of $47,790 you will likely still qualify for bankruptcy protection.   Substantial exemptions can be deducted from your monthly income that will allow most of our clients to receive the Chapter 7 Bankruptcy discharge they need. For example, single bankruptcy petitioners in Manhattan are given a $3,200/month exemption for rent that can be deducted from your monthly income.  Even if your rent is only $700/month you will still receive the full reduction of $3,200 from your monthly income calculation.   Add to this the significant exemptions that exist to protect the equity in your personal property and you will quickly see that even those people making six figure salaries will easily qualify for Chapter 7 and keep all of their property.  In the eyes of the court it all comes down to disposable income, and the bankruptcy laws in New York recognize that Manhattan is a very expensive place to live.

If you are already overwhelmed by debt, there is no need to overwhelm yourself with complicated bankruptcy laws.  If you have questions about bankruptcy protection speak to a qualified attorney who will walk you through the “means test” and give you all of your debt relief options.  Even if you don’t qualify for Chapter 7 you may be a good candidate for Chapter 13.  If you live in New York and have questions about how you can pass the Chapter 7 means test contact the Law office of William Waldner.  Reach us online or by calling 212.244.2882.  We make bankruptcy easy to understand and affordable for our clients and maintain a 100% Chapter 7 Bankruptcy discharge record in New York City as of 11/20/2013.

This article is intended for educational purposes only.  By reading this article no attorney-client relationship has been created.