What is the Means Test in New Jersey Bankruptcy?

If you are considering filing for bankruptcy in New Jersey, you may have come across the term “means test.” The means test is an important aspect of the bankruptcy process that helps determine your eligibility for different bankruptcy chapters. In this article, we will delve into what the means test entails, how it works in New Jersey bankruptcy cases, and its significance in determining your bankruptcy options.

Understanding the NJ Bankruptcy Means Test

The means test is a formula designed to assess an individual’s income and financial resources to determine if they qualify for Chapter 7 bankruptcy or if they should consider Chapter 13 bankruptcy. It was introduced as part of the 2005 bankruptcy reform legislation to prevent abuse of the bankruptcy system and ensure that those with sufficient means pay back a portion of their debts.

How Does the Means Test Work?

• Calculating Median Income

  • The means test begins by comparing your household income to the median income of New Jersey households of the same size. If your income is lower than the median income, you automatically pass the means test and are eligible to file for Chapter 7 bankruptcy. However, if your income exceeds the median, further calculations are required.

• Deducting Allowable Expenses

  • In the second phase of the means test, allowable expenses are deducted from your income to determine your disposable income. These expenses are based on standardized figures and include essential living expenses such as housing, transportation, food, and healthcare.

• Determining Disposable Income

  • The disposable income is calculated by subtracting the allowable expenses from your monthly income. If your disposable income falls below a certain threshold, you may qualify for Chapter 7 bankruptcy. On the other hand, if your disposable income exceeds the threshold, you may be required to file for Chapter 13 bankruptcy, where you will be required to repay a portion of your debts through a court-approved repayment plan.

Importance of the Means Test in Bankruptcy

The means test plays a crucial role in determining the appropriate bankruptcy chapter for individuals seeking debt relief. Here are the main reasons why the means test is significant:

• Eligibility Determination

  • The means test determines your eligibility for Chapter 7 bankruptcy, which allows for the discharge of most debts without a repayment plan. If you qualify, you may be able to achieve a fresh start more quickly. Otherwise, Chapter 13 bankruptcy may still provide a viable option for debt reorganization and repayment.

• Preventing Abuse

  • By establishing income thresholds and expense deductions, the means test helps prevent individuals with higher incomes from filing for Chapter 7 bankruptcy and discharging their debts without making substantial repayments. It aims to ensure that those with sufficient means contribute to the repayment of their debts through a Chapter 13 repayment plan.

• Accuracy and Fairness

  • The means test aims to create a fair and standardized approach to assess an individual’s financial situation. It considers both income and expenses to provide a clearer picture of an individual’s ability to repay debts and determines the appropriate bankruptcy options accordingly.

Contact a Bankruptcy Attorney to Guide You Through the Process

The means test is an essential component of the bankruptcy process in New Jersey. It evaluates your income, expenses, and financial resources to determine your eligibility for Chapter 7 or Chapter 13 bankruptcy. By calculating your income and deducting allowable expenses, the means test helps ensure fairness and prevents abuse of the bankruptcy system.

If you are considering bankruptcy, it is crucial to consult with an experienced bankruptcy attorney who can analyze your financial situation, guide you through the means test, and help determine the most suitable bankruptcy chapter for your needs. They can provide personalized advice and assist you in navigating the complexities of the bankruptcy process.

Please note that this article is for informational purposes only and should not be considered legal advice. Consult with a qualified bankruptcy attorney for specific guidance regarding your situation.