Bankruptcy is a legal process that allows a debtor to be freed from debts he owes or restructure those debts into a payment plan. The purpose of United States bankruptcy laws is to balance the rights of creditors to collect money they are owed against the need to give debtors a fresh start. In New York, you need to furnish an extensive amount of documentation to the court concerning your income, assets and debts to prove you are eligible for bankruptcy protection.
Chapter 7 Vs. Chapter 13
Chapter 7 is considered a straight-forward bankruptcy. Except for exempt assets, which can include your home and car, your assets are liquidated and paid to your creditors. Any unpaid debts are then discharged by the court, giving you a fresh financial start. However, you can only file for bankruptcy under Chapter 7 every eight years. Under Chapter 13, you keep all of your assets and submit a payment plan to the court that requires you to pay back your creditors within three to five years. There are other types of bankruptcy, such as Chapter 11, which gives business owners an opportunity to restructure debt and continue to operate their business.
You must provide the court with proof of identity, such as a copy of your Social Security card and New York driver's license, pay statements or proof of income, copies of federal and state tax returns for the past two years, copies of bills from all creditors, including credit card statements, medical bills and/or collection letters received in the prior three months, recent credit rating report, copies of monthly bills, copies of all bank or financial statements from the previous 12 months, life insurance statements, copies of the title to all vehicles you own, and copies of the deed and mortgage balances on any real estate you own. Federal law also requires you to complete a debt counseling session before you file for bankruptcy for which you'll receive a certificate of completion to include with the other required documents
Proof of Income
In addition to the required documents discussed above, if you are self-employed, you must provide bank statements and copies of checks or pay stubs for the prior six months, or a profit and loss statement, and documentation of any unemployment benefits or additional sources of income received in the prior six months. Married couples must provide proof of income for both parties.
The federal bankruptcy law means test is intended to weed out people who have substantial incomes from filing for Chapter 7 bankruptcy. The rationale is that people with higher incomes should be able to pay at least some of their debts; therefore, they should be filing under Chapter 13 rather than seeking a discharge of all of their debts under Chapter 7. The means test is based on the state median income for an individual or family.
New York Means Test
In New York, as of May 2012, the median income for an individual is $47,381. For a couple, the median income is $57,884. For a family of four, the median income is $83,775. If you fall under the median, you may file for Chapter 7 bankruptcy. If you make more than the median, there is a presumption of abuse that must be overcome in order to file a Chapter 7 petition. It would be advisable to consult with a New York bankruptcy professional if you make more than the median and want to file under Chapter 7.