Sunday, September 17, 2006

Median Income and Means Test of BAPCPA Effective October 17, 2005

As of February 13, 2006 if a single person in New York State has income in excess of $40,801 then they fail the Median Income Test and they must take the “Means Test” to determine whether they qualify to file for chapter 7 bankruptcy (liquidation of debts). For a family of 2 the income threshold for the Median Income Test is $50,136, for a family of 3 it is $59,377 and for a family of 4 it is $69,854. To perform the Median Income Test, you need to determine your gross monthly income for the last 6 months, subtract from this figure Social Security payments, Victims of Terror payments and divide this figure by 6 and multiply the result by 12. This figure is your median income. Then compare your median income to the allowed Median Income figure based on your family size as provided above.

If you fail the Median Income Test provided above, then you must take the “Means Test”. The “Means Test” is an extremely complex test consisting of 6 pages of calculations! In its simplest form you take your gross monthly income and subtract certain expenses based on the IRS National Standards, Local Standards and other actual expenses to calculate your Monthly Disposable Income. The Monthly Disposable Income is multiplied by 60 and if that amount is less than $6,000 you can file for chapter 7 bankruptcy (liquidation of debts). If that amount is at least $6,000 but not more than $10,000 then you must perform yet another calculation. You must multiply their non-priority unsecured debt (generally credit card debt) and multiply that amount by 25% (the Threshold Debt Payment Amount). If your 60 Month Disposable Income is less than your Threshold Debt Payment Amount then you may file for chapter 7 bankruptcy. Shenwick & Associates will perform the Median Income and Means Test for clients. It is not suggested that individuals perform either of these tests-they should consult with an experienced bankruptcy attorney.

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