If you are struggling to meet your financial obligations, you may have considered a bankruptcy filing as a way to get a fresh start. If you have paid attention to bankruptcy issues in the news over the last few years, you may be aware that some of the eligibility rules have changed. Are those eligibility rules the same across the country or are they different in New Jersey. As will most things, the answer is both yes and no.
The Means Test for Filing a Chapter 7 Liquidation Proceeding
Under the 2005 revisions to the federal bankruptcy laws, to qualify to permanently discharge debts under a Chapter 7 petition, you must submit to what is known as a “means test.” The means test applies a formula based on your gross income for the preceding 6 months and other financial information about you to determine whether under that formula you are presumed to have sufficient net disposable income to repay your creditors over a three-to-five year period. If the numbers demonstrate that you have that capability, you won’t be able to discharge debts in Chapter 7, but will have to seek protection under Chapter 13.
While the requirement that you submit to a means test applies across the board (in all states and territories of the United States), the actual income and expense numbers plugged into the formula varies from state to state and county to county. Here’s how it works in New Jersey:
- The first part of the New Jersey means test compares your entire household’s gross income for the past six months against the New Jersey median income for a household your size, as established using US Census Bureau numbers. The median is the point at which half the households earn more and half earn less. If your household gross income is below the median, you automatically qualify to discharge debts in Chapter 7. To determine your income, you average all income besides Social Security coming into your household during the last six months. This includes regular contributions by family members to household expenses.
- If your income exceeds the median, you must provide additional information detailing your payroll deductions and household expenses and must qualify using a complex formula that limits what types of expenses you can deduct from your gross income. Not all expenses are allowable.
Certain people are given and exemption from the means test. If your debts are primarily business related or if you are a disabled veteran and incurred your debt while on active duty, you may be able to file a Chapter 7 without submitting to a means test.
Here is the important point: timing is everything! We have seen people who lost their qualification because they waited too long to file. If you are thinking about a possible bankruptcy, get a detailed review by a qualified attorney.
Contact Neuner & Ventura, LLP
To schedule an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request. There is no cost or obligation for your first meeting.