The sheer financial magnitude of life in New York—be it the astronomical rents of Manhattan, the competitive costs of Long Island, or the complexities of running a business in a dense urban environment—can make financial distress feel uniquely isolating. For many South Asian professionals and families, this pressure is amplified by unique obligations, such as managing significant student loans, navigating volatile business debt, or the vital need to support extended family both here and overseas. When debt becomes overwhelming, the immediate goal is finding a route to complete relief, and for many, that means Chapter 7 bankruptcy.

However, accessing Chapter 7, which offers the total discharge of most unsecured debts, is not automatic. It requires passing a critical legal barrier: the Means Test.

The New York Bankruptcy Means Test is a statutory, two-part calculation designed to determine whether filing Chapter 7 (liquidation of assets) constitutes an “abuse” of the bankruptcy system. In simple terms, it exists to ensure that individuals who genuinely lack the financial ability to repay their debts over time are allowed relief, while those who can afford a repayment plan are instead channeled into Chapter 13 bankruptcy.

The core purpose of this guide is to demystify this powerful process. Utilizing the most current information available for 2026, we will provide a clear, step-by-step framework to help you navigate the New York Means Test calculation. We aim to equip you with the authoritative knowledge needed to determine your potential Chapter 7 eligibility, with specialized insights tailored to address the unique income structures and family financial responsibilities often seen within the South Asian community in New York. This comprehensive understanding is the foundation of a successful, stable financial future.

Part 1: The New York Median Income Threshold Test

The first step of the Means Test acts as a quick, decisive filter for Chapter 7 eligibility, comparing your average historical income against what the majority of New York households earn. If you are below this threshold, you automatically pass the test.

The Current Monthly Income (CMI) Lookback Period

To calculate your income for the test, the court uses your Current Monthly Income (CMI). This is not based on your income today or last year’s tax returns; rather, it’s an average calculated over a strict six-full-calendar-month lookback period immediately preceding the month you file.

The CMI Calculation:

1. Add up the gross income (income before taxes and deductions) received from all sources during the six full months before filing.

2. Divide that total by six to get your average monthly income (CMI).

3. Multiply the CMI by 12 to annualize it for comparison against the state median.

What Income is Included: CMI includes nearly all income you received, such as gross wages, salary, tips, bonuses, overtime, net income from any business or self-employment (after deducting ordinary and necessary expenses), rental income, interest, dividends, pension income, and regular contributions received from others for household expenses (including a non-filing spouse’s income, unless legally separated).

What Income is Excluded: Crucially, certain government benefits are excluded from the CMI calculation, including Social Security benefits (Retirement, SSDI, SSI), payments to victims of war crimes, and payments related to a national emergency.

The New York Median Income Threshold (2026 Caveat)

Your annualized CMI is compared to the New York State median income for a household of your size. These figures are periodically updated by the U.S. Trustee Program. Please note: Since 2026 figures are not finalized, the following table reflects the most recently published thresholds for cases filed on or after November 1, 2025, which should be used for reliable estimation.

The Pass/Fail Threshold

• Passing Part 1: If your annualized CMI is below the median income threshold for a household of your size, you are automatically presumed to qualify for Chapter 7 relief.

• Failing Part 1: If your annualized CMI is above the median income threshold, you are not automatically disqualified, but you must proceed to the more complex Part 2: The Disposable Income Calculation. This requires a detailed financial analysis to see if your required expenses consume enough of your income to still allow Chapter 7.

Part 2: The Disposable Income Calculation for Above-Median Filers

If your income exceeds the New York State median, you are not disqualified yet. You must now undergo the complex Means Test Calculation (Part 2) to demonstrate that your necessary expenses leave you with insufficient Disposable Income to pay back a meaningful portion of your unsecured debts. This is where detailed knowledge of allowable deductions is essential for justifying your Chapter 7 eligibility.

Determining Allowed Monthly Expenses

A key misunderstanding in Part 2 is that you deduct your actual, real-world monthly expenses. This is largely incorrect. The Means Test utilizes standardized expense figures set by the IRS, which are used to determine what a reasonable, necessary cost of living is for a household of your size in your area.

These expense standards fall into two main categories:

1. National Standards: These apply uniformly nationwide and cover essential living costs like food, clothing, housekeeping supplies, personal care, and miscellaneous items. The total allowance increases based on your household size. You are generally allowed to deduct this standard amount regardless of whether you spend more or less in reality.

2. Local Standards (New York Specific): These allowances recognize regional cost-of-living differences. For New York filers, the standards are broken down by county and cover:

   • Housing and Utilities: This figure varies significantly between high-cost areas (e.g., New York City metropolitan counties) and lower-cost upstate counties. The deduction covers rent or mortgage, property taxes, insurance, utilities, and more.

   • Transportation: This covers ownership costs (monthly loan/lease payments) and operating costs (gas, insurance, maintenance).

Crucial Insight: Because New York is a high-cost state, these localized Housing and Utilities standards are often higher than in most other parts of the country, which can significantly benefit the Means Test calculation for New York filers who are above the median income. However, remember that these standardized allowances may be higher or lower than your actual budget.

Mandatory Deductions: Expenses Not Tied to IRS Standards

In addition to the standardized IRS allowances, the Means Test allows you to deduct certain actual, contractual, and required expenses. These expenses are taken directly from your Current Monthly Income (CMI), and they significantly reduce your remaining disposable income.

Key Mandatory Deductions include:

• Required Taxes: Federal, state, and local taxes you are currently paying, plus any tax arrears that qualify as a Priority Debt.

• Mandatory Payroll Deductions: Payments that are required as a condition of your employment, such as compulsory retirement contributions (e.g., certain pensions) and union dues. Voluntary contributions are generally not deductible.

• Secured Debt Payments: The average monthly contractual payment you are obligated to make over the 60-month life of the Chapter 13 plan to keep assets like your mortgage, car loans, or other secured debt.

• Priority Debt Payments: Court-ordered payments for non-dischargeable obligations, primarily Domestic Support Obligations (alimony or child support).

• Health Insurance and Life Insurance: Actual monthly premiums for health, disability, or term life insurance.

Calculation Goal: After subtracting all allowable standardized and mandatory expenses from your CMI, the remainder is your monthly Disposable Income for the purposes of the Means Test.

The Final Qualification Formula 

Once your monthly Disposable Income is determined, it is used to determine your final eligibility for Chapter 7. The court multiplies this monthly amount by 60 (months/5 years), to see what you could potentially pay your unsecured creditors in a Chapter 13 plan.

The final qualification formula is:

$$(\text{Monthly Disposable Income}) \times 60 \text{ Months}$$

This 60-month total is then compared against two specific dollar amounts (which are updated periodically):

• Failing Criteria: If your 60-month Disposable Income is greater than the higher threshold (historically around $\$15,150$), there is a presumption of abuse, and you will likely be required to file for Chapter 13.

• Passing Criteria: If your 60-month Disposable Income is less than the lower threshold (historically around $\$9,075$), the presumption of abuse is rebutted, and you are eligible for Chapter 7.

If your amount falls between these two thresholds, you must perform an additional calculation to prove you cannot pay at least 25% of your total unsecured debt; otherwise, you qualify for Chapter 7.

Tailored Considerations for South Asian Residents in New York

The financial lives of South Asian residents in New York are often intertwined with family obligations and entrepreneurial ventures, creating complexities that standard bankruptcy filings may not fully capture. Addressing these nuances with accuracy and sensitivity is essential for a successful Means Test outcome.

Addressing High Household Size and the Means Test 

One significant advantage for many South Asian families facing the Means Test lies in the potential for a larger-than-average household size. Multi-generational living arrangements—where parents, siblings, or other extended family members may reside together—are common.

For the purposes of Part 1 of the Means Test, a larger household size translates to a significantly higher New York Median Income Threshold, making it easier to qualify for Chapter 7 relief. It is crucial, however, to adhere strictly to the legal definition of “household size” for bankruptcy: generally, it includes the debtor, their spouse (whether filing or not), and any dependents (children, elderly parents) whom the debtor is legally or financially supporting. While cultural definitions of “family” are broad, only those individuals who meet the legal dependency criteria can be counted on the Means Test form. Working with an attorney ensures your household count is maximized legally and accurately.

Income Documentation and Self-Employment Challenges

A high percentage of the South Asian community in New York is involved in small business ownership or self-employment, particularly in sectors like IT consulting, retail, and hospitality. While self-employment offers flexibility, it complicates the calculation of Current Monthly Income (CMI) for the Means Test.

For a wage earner, CMI is based on gross pay.² For a business owner, CMI is based on net business income—your gross receipts minus your ordinary and necessary business expenses. The challenge is providing meticulous, consistent documentation to the Trustee. This requires careful aggregation of business records, invoices, and expense reports for the six-month lookback period. Proper documentation that clearly distinguishes business expenses from personal expenses is vital to accurately reduce your reported CMI and improve your Means Test score. Without precise record-keeping, the Trustee may challenge deductions, resulting in a higher reported income.

Remittance Payments and Disposable Income

For many families, regular remittance payments sent abroad to support parents or relatives are a non-negotiable financial obligation. Under the standard Means Test calculation (Part 2), these payments are not automatically allowed as a deduction against your Current Monthly Income. This can artificially inflate your calculated Disposable Income, potentially leading to a failure of the Means Test.

This situation requires expert legal advocacy. A skilled bankruptcy attorney can argue that these remittance payments constitute “special circumstances” or “extraordinary expenditures” that reasonably justify a deviation from the Means Test calculation. This argument must be accompanied by strong evidence demonstrating the moral or legal dependency of the overseas family members and the mandatory nature of the financial support. Successfully arguing this point is key to protecting your ability to continue family support while still qualifying for Chapter 7 relief.

What Happens If You Do Not Pass the Means Test?

Failing the New York Means Test is not a financial dead end; it simply means that the court views you as having sufficient disposable income to make reasonable debt payments over time. In this scenario, you are generally directed away from Chapter 7 liquidation and toward the Chapter 13 reorganization process. Chapter 13 is a powerful, court-supervised alternative that offers many advantages, especially for asset-holding New York families.

The Chapter 13 Option: Reorganization, Not Liquidation

Chapter 13 is often called the “wage earner’s plan.”¹ Instead of having a Trustee liquidate non-exempt assets (as in Chapter 7), you propose a structured plan to the court to repay all or a portion of your debts over three to five years.² You make a single monthly payment to the Chapter 13 Trustee, who then disburses the funds to your creditors. This process ensures you retain ownership of all your property while gaining court protection from creditors.

Key Benefits of Chapter 13 in New York

For New York residents, Chapter 13 offers critical financial tools to address high-value problems:

• Stopping Foreclosure: Chapter 13 immediately halts foreclosure proceedings against your primary residence (which is vital given the high real estate values in New York). The repayment plan allows you to cure the mortgage arrears (catch up on missed payments) over the life of the plan while maintaining current mortgage payments.

• Preventing Repossession: You can stop car repossession and potentially lower the interest rate and principal balance owed on a vehicle loan if it qualifies for a “cram down.”

• Paying Priority Debts: Chapter 13 allows you to include and pay off non-dischargeable priority debts, such as recent IRS or New York State tax arrears and overdue domestic support obligations, over 60 months without further penalty or legal action.

Protecting Your Assets with New York Exemptions

A significant benefit of both Chapter 7 and Chapter 13 is the use of bankruptcy exemptions, which determine what assets you can keep.⁵ New York is a “choice state,” meaning you can choose between Federal exemptions or the generous New York State exemptions.

For asset-holding families, the New York exemptions are often superior, particularly the Homestead Exemption, which protects a substantial amount of equity in your home (the limit varies significantly by county, reaching over $\$200,000$ in high-cost areas like NYC and surrounding counties). Furthermore, most tax-qualified retirement accounts (like 401(k)s and IRAs) are fully protected under federal law, regardless of which exemption set you choose.⁹ Chapter 13 ensures you keep these valuable, protected assets while the plan focuses on addressing your unsecured debt.