As many readers are aware, individuals whose income exceeds the median income in New York State are required to do "means testing" to determine if they qualify for chapter 7 personal bankruptcy.
In New York State the median income for a family of 1, 2 or 3 is listed below and if a Debtor’s income exceeds the state’s median income they must do means testing.
Household Size Monthly Income Annual Income
1 $5,058.00 $60,696.00
2 $6,429.92 $77,159.00
3 $7,709.00 $92,508.00
If an individual wants to file for chapter 7 bankruptcy and they do not pass the means test, then there is a "presumption of abuse" and they are not allowed to file for chapter 7 bankruptcy.
The means test is an 8-page test and it is the most complicated test or calculation in the law!
Shenwick & Associates is often referred complex bankruptcy cases and we do means testing on a regular basis.
We are often asked whether non-dischargeable student loan payments are an allowed deduction for means-testing. Interestingly, the test itself does not allow a deduct for non dischargeable student loan payments. However there is a deduction for " special circumstances" and many bankruptcy attorneys believe that non-deductible student loan payments should be a special circumstance deduction.
There is a case on point from the Western District of New York (it is not a case from the Southern or Eastern Districts), but it holds that non-deductible student loan debt can be deducted when doing means testing and the logic of that case may be persuasive to judges in this District. The name of that case is in re Howell 477 B.R. 314 (2012).
In the Howell case, the United States Trustee has moved to dismiss this Chapter 7 case on grounds that the granting of a bankruptcy discharge would constitute an abuse. The central issue in the case was whether the obligation to pay a non-dischargeable student loan can serve as a special circumstance that will overcome a statutory presumption of abuse under 11 U.S.C. § 707(b)(2).
Section 707(b)(1) of the Bankruptcy Code establishes the general rule, that the Court may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if the filing would be an abuse.
In the Howell case, the debtor had student loan payments of $658.00 per month and if this deduction were treated as an allowable expense, their current monthly income would fall to a level that avoids a presumption of abuse.
Section 707(b)(2)(B)(i) of the Bankruptcy Code states that in any proceeding to dismiss a case for abuse, "the presumption of abuse may only be rebutted by demonstrating special circumstances.
The Court found that there was no evidence that the Debtors lead an extravagant lifestyle.
The Debtors had three outstanding student loans. In sworn affidavits, the Debtors stated that they were not eligible for any further extensions and that as presently constituted, the loans require monthly payments through dates that range between 16 and 24 years after the filing of their bankruptcy petition.
The Judge held that the totality of evidence supports the absence of an abusive filing and that Section 707(b)(2)(B)(i) provides that special circumstances" may rebut the presumption of abuse.
The Court stated that the non-dischargeable character of the debtors' student loans will necessitate expenses for which the debtors have no reasonable alternative.
The Judge further found that the magnitude of the student loans will further compel substantial payments over an extended period of time, without hope for any deferral.
The Judge held that based on the debtor’s student loans and non extravagant lifestyle the bankruptcy filing was non-abusive and the Debtor’s were granted their chapter 7 discharge.
We should note that the debtors were not attempting to discharge their student loans in their chapter 7 bankruptcy filing.
Individuals that have questions about Personal Bankruptcy or the Means Test should contact Jim Shenwick 212 541 6224 or jshenwick@gmail.com
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