Presumption of Abuse in Chapter 7: How New York High-Income Earners Can Still Qualify for Discharge

High-Income New Yorkers Can Still Escape Debt: Overcoming the Presumption of Abuse in Chapter 7 Bankruptcy

Many high-income earners in New York believe they’re automatically disqualified from Chapter 7 bankruptcy relief due to their substantial salaries. However, there are special circumstances where a case will not be dismissed, but these circumstances are narrowly defined. Understanding how to navigate the presumption of abuse can be the difference between financial freedom and years of debt repayment.

Understanding the Presumption of Abuse

In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that requires debtors to submit their income to a means test before they can qualify for a Chapter 7 filing. The means test determines whether or not a debtor’s income is low enough such that they qualify for a Chapter 7 bankruptcy filing. A Chapter 7 filing may discharge all that the debtor owes, and thus Congress wanted to ensure that only those who truly needed this tool were using it.

If the means test shows that a debtor makes too much money, it is presumed that the debtor is attempting to abuse the bankruptcy code by filing for Chapter 7. In New York, if your disposable income is less than $9,075, there is no presumption of abuse, meaning you’ve passed the Means Test. If your disposable income is over $15,150, there is a presumption of abuse and the court will likely dismiss your Chapter 7 filing.

The Two-Part Means Test Process

New York’s Chapter 7 eligibility follows a structured approach. If your Current Monthly Income (“CMI”) is less than the Median Family Income (“MFI”) for a household of your size in the State where you reside (based on the most recent U.S. census data), there is no presumption of abuse and you can file a Chapter 7 bankruptcy petition.

However, if your income exceeds the median, you’re not automatically disqualified. If you didn’t pass the median income test above, it doesn’t automatically mean you can’t file for Chapter 7 bankruptcy. The law allows you to deduct certain expenses from your income and compute whether you have any disposable income left. If your disposable income is less than the designated limit, you’ll still pass the Means Test.

Special Circumstances: Your Path to Chapter 7 Relief

The most powerful tool for high-income earners is demonstrating special circumstances. Special circumstances are unanticipated situations beyond your control. And because they’re not your fault, they justify allowing you to deduct additional expenses during the means test. They may also allow you to make additional adjustments to your current monthly income when taking the means test.

Common special circumstances that New York courts recognize include:

  • A significant reduction in income, such as through loss of a job or another regular stream of revenue that had been factored into the means test calculation
  • Unexpected expenses, such as property losses due to thefts, accidents or catastrophes like fires, floods or devastating storms
  • Substantial changes in the debtor’s personal life that affect expenses, such as childbirth, divorce or caring for a disabled family member
  • A serious medical condition and being called to active duty service in the military

The BAPCPA does not specifically define “special circumstances,” but other situations that may be considered as such include sudden medical expenses, recent unemployment or a sudden rent increase.

Strategic Timing and Income Fluctuations

One often-overlooked strategy involves timing your bankruptcy filing strategically. As an example, if you file in July, your CMI is your average monthly income received from January thru June of that year. Consequently, you can be unemployed at the time of a bankruptcy filing and still have CMI. In fact, it is conceivable that an unemployed debtor who recently lost a high paying job could have CMI in excess of the applicable MFI, and therefore have a presumption of abuse. A competent attorney should be able to avoid this somewhat absurd result by timing the filing of your petition.

The Reality of Overcoming Presumption

There are two points to keep in mind about this concept: First, it’s a presumption, which means it can be overcome. If the bankruptcy court determines there’s a presumption of abuse, you’ll get a chance to rebut it. You can do this by identifying special circumstances or exceptions that apply to you.

Importantly, if a court presumes abuse, that doesn’t necessarily mean the court thinks you’re trying to commit bankruptcy fraud. The system is designed to ensure those who truly need debt relief can access it, even with higher incomes.

Working with Experienced Legal Counsel

Successfully overcoming the presumption of abuse requires sophisticated legal strategy. Special circumstances are by nature individualized and require documentation to verify. Rebutting the presumption of abuse demands a careful analysis of the facts by a knowledgeable and experienced bankruptcy attorney.

The Law Offices of Ronald D. Weiss, PC, serving Long Island and the greater New York area since 1993, understands the complexities facing high-income earners seeking Chapter 7 relief. The Law Offices of Ronald D. Weiss, PC have been supplying expert bankruptcy, foreclosure defense, and debt negotiation services since 1993. We offer practical, compassionate solutions customized to each client’s financial situation. With over 30 legal professionals on our team, we have the resources to handle your important legal matter.

When facing the presumption of abuse, having a skilled chapter 7 attorney who understands both the technical requirements and the human circumstances behind your financial difficulties can make all the difference in achieving the fresh start you deserve.

Your Options When Presumption Cannot Be Overcome

If special circumstances cannot be established, you still have options. If the presumption cannot be overcome, there is still the option of converting the bankruptcy to a Chapter 13, which allows for creating a plan that limits debt repayment to the amount that the debtor’s disposable income allows.

Don’t let a high income prevent you from exploring your debt relief options. The presumption of abuse is exactly that—a presumption that can be challenged with the right legal strategy and documentation of your unique circumstances.