Chapter 7 bankruptcy is that section of the U.S. Bankruptcy Code that deals with asset liquidation, which means the selling of all non-exempt assets by a court-appointed trustee, who applies the proceeds of the sale to pay your creditors. In return, a debtor receives a discharge, which releases a debtor from all dischargeable debts, and orders creditors to forever stop their attempts to collect the discharged debts.
Once a debt is discharged, a debtor is forever relieved of the obligation to pay a debt. Some debts cannot be discharged. A few examples include certain taxes, alimony, child support, student loans, debts not listed in the Chapter 7 bankruptcy petition, and debts incurred as a result of defrauding or misleading a creditor.
There are two criteria which determine your eligibility as a Long Island resident to file for Chapter 7 bankruptcy – assets and income.
With respect to assets, under New York State law, an individual is allowed to protect certain basic assets from their creditors. This is called exempt property, or exemptions. So long as the value of your assets do not exceed the statutory limitations, you have met this criteria.
With respect to income, under the Bankruptcy law, most individuals or couples filing for protection under Chapter 7 must now meet certain eligibility requirements under a “Means Test.”
Under the Means Test, you must first determine if your average monthly income, from all sources, for the six month period prior to filing is below the median income for your state, based upon the size of your household. If your average monthly income for the six month period prior to filing is below the median income for your state, you have passed the first hurdle, and so long as you meet the other eligibility requirements, you can file for protection under Chapter 7 bankruptcy.
If your average monthly income for the past six months is above the median income for your state, you must proceed to the second hurdle – do you have the ability to repay a portion of your debt?
The second hurdle is the determination of your ability to repay a portion of your debt. Under the Means Test, you are required to complete an analysis of your income and expenses (based upon the Internal Revenue Service guidelines for your state as well as certain actual monthly expenses that your may incur – such as mortgage or automobile loan payments). If, after completing the Means Test analysis, it is determined that your net disposable income is less than $200.00 per month, you have passed the second hurdle and you can proceed with your Chapter 7 bankruptcy filing so long as you meet the other requirements.