Means Test FAQ

Bankruptcy Means Test ▼

What are the different kinds of bankruptcy?
What are the different kinds of bankruptcy?
Bankruptcy law is important enough to comprise all of Title 11 of the United States Code.

Chapters 7 & 13: The Two Kinds of Bankruptcy Most Consumers Use

This website focuses on the two most common types of bankruptcy filed by individuals: Chapter 7 and Chapter 13. But here’s a quick summary of the six types of bankruptcy most commonly filed under the bankruptcy code; they get their names from the chapters where they appear in the code.

Chapter 7 Bankruptcy
- Chapter 7 lets individuals wipe out (“discharge”) most kinds of debt in just a few months.
- You get to keep certain kinds of property—for example, at least some of the equity in your home, car, clothing, personal items, and property essential to your profession. This type of property is called “exempt” property, and many Chapter 7 filers find that exemptions cover most of what they own.
- If you have nonexempt property, the bankruptcy trustee will sell it to repay your creditors as much as possible.
- To qualify for Chapter 7, you must pass the “means test,” showing that your income is less than the state median income for your family size.
- Most bankruptcies filed in the U.S. are Chapter 7 bankruptcies. (For more information, see How Chapter 7 Bankruptcy Works.)
Chapter 13 Bankruptcy
- Under Chapter 13, an individual repays some or all of their debts under a payment plan approved by the bankruptcy court.
- Chapter 13 bankruptcy takes three to five years to complete.
- Those who choose Chapter 13 usually do so because they want to protect certain kinds of nonexempt property or because they have too much income to qualify for Chapter 7. (Most people prefer to file for Chapter 7 if eligible because Chapter 7 allows you to erase most kinds of debt in three to six months.)
- You can qualify for Chapter 13 if you have a steady income and your debts don’t exceed the limits set by the bankruptcy code. (For more information, see How Chapter 13 Bankruptcy Works.)
Less Common Types of Bankruptcy

Chapter 9 Bankruptcy

Cities or towns may file for Chapter 9 bankruptcy if they are overwhelmed by debt. It allows municipalities to develop a plan for handling debts while holding creditors at bay.

Chapter 11 Bankruptcy
- Chapter 11, often called “reorganization bankruptcy,” is used by businesses and some wealthy individuals with complex financial affiars.
- It allows a business to devise a court-supervised plan to pay back creditors while keeping its doors open. We mostly hear about big companies filing for Chapter 11, but small businesses or even individuals can use it, too.
- The trouble is that Chapter 11 is usually too expensive for smaller undertakings and anyone other than the most wealthy because it entails many meetings, court hearings, and big bills from bankruptcy lawyers.
Chapter 12 Bankruptcy
- This type of bankruptcy is a lot like Chapter 13, except it’s available only for family farmers and fishermen.
- It’s designed to help farmers and fishermen keep their livelihoods while paying off debts under a court-approved plan.
- Chapter 12 has a higher debt threshold and more options to protect property than Chapter 13.
Chapter 15 Bankruptcy
- Chapter 15 is for people or organizations with debts and property in the United States and other countries.
- Under this chapter, federal bankruptcy courts can limit their involvement in the case to just the property and people in the United States.
Do I qualify for bankruptcy?
Do I qualify for bankruptcy?
To qualify for Chapter 7 bankruptcy, you must show that either:
- Your income is below New York’s median income for your family size, or
- Your income and expenses, calculated together, leave you unable to pay your debts. This is determined under a complex formula called the bankruptcy means test.
If you don't qualify for Chapter 7, you may still be eligible to file under Chapter 13. To qualify for chapter 13, your debt must be under the limit set by the bankruptcy code, and you must be current on your tax filings for the last four years.

See How Chapter 7 Bankruptcy Works or How Chapter 13 Bankruptcy Works.
Secured debt vs. unsecured debt: What's the difference?
Secured debt vs. unsecured debt: What's the difference?
Secured debt. A secured debt is backed up by property, like your home or a car, also known as "collateral." The creditor can take back the collateral if you don't repay the debt.

Secured debt can be voluntary -- for example, when you get a mortgage to buy real estate or a car loan. It can also be involuntary -- say, if the government puts a lien on your property for back taxes.

Unsecured debt. Unsecured debt isn't backed up by collateral. Lenders give you credit without "security," relying on your credit history and your promise to repay. Unsecured debt can include everything from your credit cards to your gym membership, your medical bills to a loan from a friend.

In bankruptcy, unsecured debt is divided into priority and non-priority claims. If there's any money available to pay your creditors, priority claims come first. Non-priority unsecured debts are rarely paid in bankruptcy.

Common priority unsecured debts include:
- legal fees related to the bankruptcy filing
- child support and alimony
- federal or state income taxes
- a certain amount of wages and benefits owed to employees, and
- claims against you for operating a vehicle under the influence of alcohol or drugs.
To learn more, see our articles on How to File for Bankruptcy.
Do I need a lawyer to file for bankruptcy?

Do I need a lawyer to file for bankruptcy?

You're not legally required to use a lawyer to file for bankruptcy. Whether you're a good candidate for handling your own bankruptcy depends on the complexity of your financial situation and your willingness to take the time to learn the rules of bankruptcy. If you're not the type of person willing to carefully read a lot of information and follow instructions to the letter—or if your situation has you feeling too overwhelmed to do so—then self-help is probably not for you.

Evaluating your financial situation. If you owe only unsecured debt—like credit card charges or medical bills—you may be able to file for bankruptcy on your own. But you must also consider the amount and type of property you own. If you own your home, have substantial retirement savings, or have other valuable assets, you may want to consult a lawyer to ensure your property is not at risk.

An excellent way to approach the decision to hire a lawyer is to buy (and read) Nolo's book How to File for Chapter 7 Bankruptcy. It will give you a good idea of what issues may arise when you file and flags specific situations when a lawyer's help is called for. It will also give you a good sense of whether the complexity of the filing process is something you'll want to take on alone. (If your financial situation is simple, but you just don't want to deal with the forms, you might consider using a bankruptcy petition preparer to handle the form preparation.)

Other resources, other opinions. Lots of people have opinions on the topic of whether you should get a lawyer. Most lawyers—surprise!—think you should always have a lawyer. But, seriously, they make valuable points worth reading as you decide what to do.

The Moran Law Group, in addition to providing loads of valuable free information about bankruptcy, also makes a case for getting a lawyer. The U.S. Courts website also offers information about filing without an attorney. Nolo, too, offers an article called Filing for Bankruptcy Without an Attorney. These sources are all worth reading.

Finding a lawyer. For more information about finding a qualified bankruptcy lawyer near you, see the Lawyers section of this website.
Where do I file for bankruptcy in Hamilton County, NY?

Where do I file for bankruptcy in Hamilton County, NY?

Most people file for bankruptcy in the federal district court closest to where they live. However, if you run a business in a different district and most of your property is located there, you may have to file in that location.

Also, if you've moved in the past six months (180 days), you may have to file in the federal district court where you used to live. It all depends on where the greater portion of your property has been for most of the past 180 days.

Wherever you're required to file, know that you can handle most of your business with the court, including filing your bankruptcy forms, by mail. However, you will need to visit the courthouse at least once to meet with the bankruptcy trustee.

For more details and to find your local court, see our articles on How to Find Your Bankruptcy Court in Hamilton County, NY.
Can I get free bankruptcy forms?

Can I get free bankruptcy forms?

Yes! All official federal and local bankruptcy forms are available free of charge. You can find the links you need by visiting our bankruptcy forms page.

You can also vistit the U.S. Courts website to find free, downloadable copies of the federal forms.

If you want copies of bankruptcy forms with plain-language instruction and tips for filling them out, you might want to use a good self-help book like How to File for Chapter 7 Bankruptcy or Chapter 13: Keep Your Property and Repay Your Debts Over Time, both published by Nolo.
What happens to my property in bankruptcy?
What happens to my property in bankruptcy?
When you file for bankruptcy, all your property becomes part of the "bankruptcy estate." The bankruptcy trustee has control of your "bankruptcy estate property" while your case is going on. This property is to be distributed for the benefit of your unsecured creditors.

If that were the end of it, bankruptcy wouldn't be a very good deal because you'd be left with no property. Fortunately, that's NOT the end of the story.

Every state has "exemption laws" that say that specific kinds of property, generally up to a dollar limit in value, are exempt from collection by creditors.

These laws are applied when you file for bankruptcy.

So, even though bankruptcy is a federal law, New York’s exemption laws may determine how much and what kinds of property you get to keep.

As it turns out, most people who file for Chapter 7 Bankruptcy lose no property at all because what little property they do have is, either
- fully protected by exemption laws, or
- pledged to secured creditors, and therefore not available to the bankruptcy estate.
These so-called "no-asset bankruptcies" are so common that there's a checkbox for it on the petition form. You can check a box to indicate that no assets will be left to distribute to unsecured creditors once you're done claiming your state's exemption laws.

Whether or not you file for bankruptcy, unsecured creditors cannot seize your exempt property to pay off your debt. Even if the creditor goes to court, wins a court judgment against you, and takes steps to attach a lien to your property, you are still entitled to your exemption amount before the creditor gets any proceeds from a sale.

If you sell your exempt property voluntarily, the creditor has a right to have its lien paid from the sale proceeds before you receive anything.

As a practical matter, most of the property of people who file for Chapter 7 bankruptcy is exempt, so they don't want to sell what they have. If all of your property is protected by exemption laws, you are said to be "judgment proof,"—meaning that creditors can't collect anything from you, whether or not you file for bankruptcy.

Exemptions apply to your equity in property.

One important thing to remember is that an exemption protects only the "equity" in your property. That's the difference between the value of the property and what you owe to creditors—like your mortgage lender—who have a secured interest in it.

Example

If you owe $18,000 on a $20,000 car, you have only $2,000 in equity. If your state has at least a $2,000 exemption for motor vehicles, that will be enough to protect the $20,000 car in bankruptcy—but you must continue to make the payments to the secured creditor.

On the other hand, if you own the vehicle free and clear, then your equity is the full value of the vehicle, and a $2,000 exemption would not be enough to protect it. The trustee would force the sale of the car, you would get your exemption amount, and the trustee would get the rest of the proceeds to distribute to the unsecured creditors.

More Information

To learn what property is exempt in your state, see the Exemptions section of this website.
Do I have to get credit counseling before I file for bankruptcy?

Do I have to get credit counseling before I file for bankruptcy?

Yes. Before you file for bankruptcy, you must take a brief credit counseling class and get a certificate proving that you have done so. If you are planning to file jointly with your spouse, you can both attend the same counseling session, but each of you must get a separate certificate. You can usually take a class online or over the phone.

The counseling class usually costs around $50 to $75 or less. However, federal bankruptcy law states that credit counseling agencies must provide credit counseling services without regard to a client’s ability to pay and must disclose the possibility of a fee waiver or fee reduction before beginning the counseling session.

Many critics of federal bankruptcy law see the credit counseling requirement as a bureaucratic obstacle for already-desperate debtors. Perhaps so. But try to make the most of your 90-minute session by getting as much free information as possible. You may be able to use it as a way to get a second opinion about your financial situation and to gauge whether bankruptcy is, indeed, the right choice for your situation. (Keep in mind, however, that a credit counselor is not legally allowed to tell you whether or not you should file for bankruptcy.)

For more information, see the U.S. Department of Justice Credit Counseling FAQ. When you’re ready to sign up for a counseling class, you can use this list of court-approved credit counselors.

Once you’ve filed, you’ll need to take another online class- a “Debtor Education” class- before receiving your final order discharging your debts.
What is a 341 hearing (creditors meeting)?

What is a 341 hearing (creditors meeting)?

Everyone who files for bankruptcy must attend a 341 hearing, which is also called a "creditors meeting." The meeting is conducted by the bankruptcy trustee assigned to your case. The trustee will put you under oath and may ask you questions about the information you've provided on your bankruptcy forms. Creditors may also show up at the hearing to ask you questions, but it's not common for them to do so.

Bankruptcy law also requires the trustee to ask you questions to be sure you understand how bankruptcy works and the potential consequences of filing bankruptcy, such as the effect on your credit record.

For most bankruptcy filers, this will be your only trip to the courthouse (or during the Cornavirus, a virtual trip to the courthouse, via a phone meeting. See below). Most court websites post schedules of 341 hearings, and when you file, you will be notified of your hearing date. When you show up for your hearing, you will find that many other people have hearings set for the same day. You will sit and wait for your name to be called--usually in a room somewhere in the courthouse or federal building, but probably not in a courtroom.

The book How to File for Chapter 7 Bankruptcy provides detailed information about what to expect at your 341 hearing.

The Department of Justice offers Information about creditors meetings on a district by district basis.

To go to your Local 341 Meeting Information page, click on this link:
What is the Automatic Stay?

What is the Automatic Stay?

The automatic stay is provided for in §362 of the Bankruptcy Code.

It is an automatic injunction that goes into effect when a person files for bankruptcy.

The purpose of the automatic stay is to provide the debtor with a temporary reprieve from their creditors.

When the automatic stay is in effect, creditors are generally prohibited from taking any action to collect on a debt. This includes things like calling the debtor to demand payment, garnishing the debtor's wages, or foreclosing on the debtor's home. The automatic stay gives the debtor some breathing room to reorganize their finances and work out a plan to pay off their debts.

The automatic stay is a powerful tool that can provide much-needed relief to someone struggling with overwhelming debt.

But... the automatic stay is not a permanent solution. Creditors may be able to get the stay lifted if they can show that it is necessary to do so to protect their interests.

For example, it is often quite simple for a landlord to get a stay lifted to proceed with an eviction.

And a Chapter 7 bankruptcy won't permanently stop a foreclosure or other collection efforts by secured creditors, but a Chapter 13 bankruptcy can force such collection efforts into a pay-over-time repayment plan.

It's important to consult with a bankruptcy lawyer before assuming that the automatic stay will protect you from further collection efforts in your particular situation.
What is an Adversary Proceeding?
What is an Adversary Proceeding?
An “adversary proceeding” in bankruptcy is a lawsuit within your bankruptcy filing to settle a specific issue.

Certain benefits of the bankruptcy code, like the ability to discharge student loans in cases of “undue hardship,” require an extra step in the process (an “adversary proceeding,” essentially a lawsuit within the bankruptcy)

MONEY TIP $$: When you hire a lawyer to handle your bankruptcy, ask whether the fee includes adversary proceedings. Most lawyers' upfront fees do NOT include the cost of doing an "AP."

An adversary proceeding in bankruptcy is a lawsuit filed within a bankruptcy case. It is used to resolve legal disputes arising within a bankruptcy case context. Aside from student loan undue hardship cases (under section 523(a)(8)), issues that might be addressed in an adversary proceeding include any of 18 other categories about disputes over the dischargeability of a debt, the ownership of property, or the validity of a lien.

To file an adversary proceeding, you must first have a bankruptcy case open. If you do not have a bankruptcy case open, you will need to file a bankruptcy petition and receive a case number before you can file an adversary proceeding.

Once you have a bankruptcy case open, you can file an adversary proceeding by following the Federal Rules for court proceedings (Rule 7004), which includes doing the following:
1. File a complaint: This legal document outlines the nature of the dispute and the relief you seek.
2. Serve the complaint: You must serve a copy of the complaint on all parties involved in the dispute. This is typically done through the United States Marshal's Service.
  
  This just got easier as of December 1, 2022: Look here: Effective December 1, New Rules Simplify a Consumer Bankruptcy Practice.
3. File a proof of service: Once you have served the complaint, you must file a proof of service with the court to show that the complaint was served on the other parties.
4. Respond to the complaint: The other parties will have an opportunity to respond to the complaint by filing an answer or other responsive pleading.
5. Attend hearings and participate in discovery: The case will proceed through the usual litigation process, including any necessary hearings and discovery.
6. Attend a trial: If the case is not resolved through settlement or other means, it may go to trial.
It is important to note that adversary proceedings can be complex and time-consuming, and it is often advisable to seek the assistance of an attorney if you are considering filing one.

Hamilton County, NY Bankruptcy Resources

Hamilton County Bankruptcy Means Test Calculator

Hamilton County Bankruptcy Court

New York Bankruptcy Exemption Laws

Quick Links