The bankruptcy means test helps debtors with primarily consumer debt figure out which chapter of bankruptcy will work best for them. Those below a certain income threshold will be eligible to file for Chapter 7 bankruptcy and have general unsecured debts wiped out. Those who are above this income threshold will need to file Chapter 13 bankruptcy, which requires repayment of a portion of unsecured debts. You need to understand where you fall on this threshold before filing for bankruptcy. Here is everything you need to know about the NJ means test.
How Do I Know If My Income Is Greater Than the Median?
It's a common misconception that you have to be penniless to qualify for Chapter 7 bankruptcy, but you do have to meet certain qualifiers.
First, compare your monthly gross income (income before taxes) to the median gross income for a household in the area of your residence. If your accumulative household income is below this, you will qualify for Chapter 7 bankruptcy and will likely be able to discharge much of your unsecured debt. This can be somewhat difficult to determine on your own, as median income will change year to year and from town to town. A bankruptcy attorney
can help you determine if you meet the income requirements.
If your gross household income exceeds the median for your family size/area, it does not mean you automatically disqualify for Chapter 7 bankruptcy. There are many household debt payments and expenses that can be used to lower your gross income below the median, like: mortgage payments, car loan payments, and taxes. You may still be eligible to discharge the majority of your general unsecured debts.
I Pass the Means Test—Now What?
In order to ensure that only those who are truly financially strapped qualify for debt relief via Chapter 7, the court will also look at your projected net monthly income (income after payroll deductions) and your estimated household expenses. This will determine if you have any disposable
income. If it is found that you have over $100 in monthly disposable income, you will not be eligible to file for Chapter 7 bankruptcy. Instead, you would be required to file for Chapter 13 bankruptcy with a commitment to use your monthly disposable income to pay back your debts.
It should also be noted that just because you qualify for Chapter 7 bankruptcy does not always mean it is the best course of action for your specific circumstances. Veitengruber Law or a bankruptcy attorney near you will be able to guide you through choosing which path is right for you.
I Did Not Pass the Means Test
If you do not pass the means test, you will need to file under Chapter 13 and commit to monthly payments over a three to five-year period. Keep in mind that certain kinds of debt cannot be discharged
and will need to be dealt with under a Chapter 13 reorganization regardless of the means test.
Veitengruber Law offers a full array of debt management solutions
suited for every client. Filing for bankruptcy can be a difficult and confusing process. We can help you make informed decisions for a brighter financial future!