What is a ‘Presumption of Abuse’ in Bankruptcy?

When you file for Chapter 7 bankruptcy in Brooklyn NY, you need to meet certain requirements. Bankruptcy is meant to be a last-resort option, as it has both financial and credit consequences. Not only will you be required to complete a credit counseling course, but also you’ll have to meet certain income guidelines in order to move forward with your bankruptcy case. 

A finding of ‘presumption of abuse’ lets the bankruptcy court know that you have sufficient income to pay into a Chapter 13 repayment plan. In other words, you make too much money and do not qualify for Chapter 7 bankruptcy. As you can imagine, these requirements are set in place to prevent people from abusing the system. 

However, this is not the news you want to hear if you’re truly struggling to pay your bills and need help. Working with an experienced bankruptcy attorney in Brooklyn will help prevent this from happening. They will be able to tell you from the start if you qualify and what type of bankruptcy is best. 

Let’s learn more about the presumption of abuse in bankruptcy and what you need to qualify for both Chapter 7 and Chapter 13 bankruptcy. 

Qualifying for Bankruptcy in Brooklyn NY

Not everyone qualifies for bankruptcy. In a Chapter 7 bankruptcy, your household income cannot exceed the state’s median income for a family of the same size. However, if your income is higher than average, you can still take a means test to see if you pass. 

The Chapter 7 means test allows you to reduce income by subtracting out necessary expenses like taxes, life insurance, childcare expenses, health care costs, certain education costs, court-ordered payments and involuntary payroll deductions. 

For your other expenses – housing, utilities, food – you’ll have to follow the amounts set by national and local standards. This prevents people from filing for bankruptcy because they choose to live higher than the average person. When complete, the means test shows your true disposable income. 

If you fail the means test, this means that your total disposable income exceeds the threshold amounts established by federal law. The court will find that there is a presumption of abuse and you can actually pay back some of your debts. If the presumption turns out to be true, you have the option of filing for Chapter 13 bankruptcy. 

How Does a Presumption of Abuse Affect Bankruptcy? 

There are two things to keep in mind about a presumption of abuse. First, it’s a presumption, meaning that it can be overcome. You can do this by identifying certain circumstances or exceptions that apply to you, such as a serious medical condition or being called to active duty service in the military. 

Second, just because the court presumes abuse does not mean it thinks you’re trying to commit bankruptcy fraud. Instead, it might feel that Chapter 13 bankruptcy is better suited for you. This is why it’s important to work with the court and not against it. 

Who Qualifies for Chapter 7 Bankruptcy? 

To qualify for Chapter 7 bankruptcy in Brooklyn, you must meet the following criteria: 

  • The average of your monthly income in the past six months must be lower than the median income for the same-sized household in New York. Or you have to pass the means test. 
  • You can’t have filed for Chapter 7 bankruptcy in the past 8 years.
  • You can’t have filed for Chapter 13 bankruptcy in the past 6 years.
  • If you attempted to file either Chapter 7 or Chapter 13 bankruptcy but your case was tossed out, you have to wait 181+ days to refile. 
  • Typically, you will be required to complete credit counseling within 180 days before you file bankruptcy. 

Who Qualifies for Chapter 13 Bankruptcy? 

The requirements for filing Chapter 13 bankruptcy in Brooklyn are different from Chapter 7 and include: 

  • Must have sufficient income to make monthly payments to your creditors, as outlined in the repayment plan.
  • Unsecured debts must be less than $465,275, and secured debts must be less than $1,395,875 for cases filed between April 1, 2022 and March 31, 2025.
  • If you attempted to file either Chapter 7 or Chapter 13 bankruptcy but your case was tossed out, you must wait 181+ days before refiling. 
  • Must provide proof that you filed federal and state income tax returns for the past 4 years.
  • Typically, you will be required to complete credit counseling within 180 days before you file for bankruptcy. 

Schedule a Consultation Today

The Law Office of William Waldner is experienced in handling Chapter 7 and Chapter 13 bankruptcy cases in New York. We will look over your financial situation and determine the best type of bankruptcy to file. And if we do run into any problems along the way, you have a great team of attorneys to protect your best interests! Schedule your free consultation with our bankruptcy lawyers today! 

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