New Jersey Chapter 7 Bankruptcy Means Test
Before you file for bankruptcy in New Jersey under Chapter 7, you must first determine whether you satisfy a means-based test. The New Jersey Chapter 7 bankruptcy means test is imposed in order to determine whether an individual is entitled to the clean slate bankruptcy relief that Chapter 7 generally provides, or whether it would be more equitable to require filing under Chapter 13.
The means test basically functions to ensure that only individuals who do not have the means necessary to repay their debts are eligible to file for personal bankruptcy under Chapter 7. If you want to know more about the means based test, speak with a capable bankruptcy attorney.
The Chapter 7 Means Test Requirements
The New Jersey Chapter 7 bankruptcy means test is an income-based test designed to determine whether a full discharge of unsecured debt is appropriate. Debtors who do not satisfy the means test will generally be required to file under Chapter 13, where a repayment plan will be designed in order to repay a portion of the unsecured debt.
To determine whether a debtor satisfies the Chapter 7 means test, he or she must:
- Step One: Determine whether the debtor’s debts are primarily consumer debts or business debts. If the debts are primarily business debts, the means test need not be satisfied.
- Step Two: If primarily consumer debts are involved, calculate the debtor’s average monthly income over the prior six-month period. “Income” includes income from wages, retirement accounts, annuities, interest, dividends, rental income, unemployment compensation and workers’ compensation, but not Social Security benefits. If this figure is less than the median income for the debtor’s household size in New Jersey, the means test is satisfied and Chapter 7 filing is permissible. If not, the debtor must proceed to step three.
- Step Three: Determine average monthly “disposable income”. To calculate disposable income, the debtor is permitted to subtract certain allowable household expenses from his or her average monthly income. Amounts for food, clothing and out-of-pocket health care expenses may be deducted. Insurance costs, mortgage or rent payments and utilities expenses may also be deducted. The U.S. courts website provides a form that is used in making this calculation.
Timing the Filing of the Bankruptcy Petition
If the debtor does not satisfy the means test, he or she will not be eligible to file under Chapter 7. In some cases, however, it may be beneficial to wait a few months to see if the debtor can satisfy the New Jersey Chapter 7 bankruptcy means test at a later date.
This may be the case if the individual has recently lost his or her job, so that average income over the prior six-month period does not accurately reflect the income that will be available to repay debts pursuant to a Chapter 13 repayment plan.
How a New Jersey Chapter 7 Bankruptcy Attorney
If you are considering filing for bankruptcy under Chapter 7, contact an experienced bankruptcy attorney before filing in order to ensure that you satisfy the New Jersey Chapter 7 bankruptcy means test. This step can prove crucial because a judge is entitled to dismiss your case entirely if you do not meet the requirements of the means test. A New Jersey bankruptcy attorney can provide support throughout the entire process.