Bankruptcy and the New Jersey Means Test

70676193_bc99ae139fPhoto courtesy of Jackie

If you’re having significant trouble paying your bills and making good on your debts, it’s important that you stop trying to keep up with the Joneses. The first step to getting back to financial wellness is to take a good, hard look at your purchases and eliminate anything non-essential. If that means your neighbors will have a better Christmas display this year because your animated Santa and reindeer blew a fuse, so be it.

But, you say, you make as much money, if not slightly more, than the Joneses. Why is it that you’re the one filing for bankruptcy? And, when it comes to Bankruptcy Court, will your income (as compared to everyone else’s) play a role in the outcome of your case?

The answer is complex, but in general: Yes.

Part of the process of filing for bankruptcy in the State of New Jersey includes something called the Means Test. This test involves comparing your income with a schedule of the median incomes in your state. The number of people in your household comes in to play as well. If you take home less money than the median household does, you will qualify to file for a Chapter 7 bankruptcy. This assumes that your bankruptcy matter is also rather straightforward in that you hold no properties, goods, pensions, or other items that exceed exemption, and that you are not knee-deep in mortgage arrears, student loans, or child-support debt, etc.

If, when you take a look at the Schedule of Median Incomes, you find that your income exceeds the median, don’t despair. A skilled NJ bankruptcy attorney can run a unique means test based on your personal economic situation and financial obligations. You still may qualify for a Chapter 7 bankruptcy if you are slightly above the median income, but proving your case will become increasingly difficult.

Are social security payments included in means testing? Will your child support payments affect where you fall on the income scale? These are important questions that your bankruptcy attorney can answer for you. Based on your income and your obligations, your attorney will be able to begin your Chapter 7 bankruptcy filing, (which will discharge most or all of your debts) or will help you file for Chapter 13 bankruptcy (in which you will set up payment plans you can afford).

If you’ve been on the fence about filing for bankruptcy, time is of the essence. Although it may seem that median incomes would be on the rise due to the slight upturn in the economy, the cold hard truth is that the opposite is true in most areas. The unemployment rate has dropped a bit, but many people have taken lower paying jobs than they held previously. Furthermore, countless employees have been dealt pay cuts or freezes in order to keep their jobs. These factors combine to mean that, although less people are unemployed, the median income isn’t going up.

What that means for you:

Let’s assume that your income is $50,000/year and that the latest median income data for a family like yours is $52,199.

In that example, you fall below the median income for your area, and you would qualify to file for Chapter 7 bankruptcy, which would give you the best chance at financial recovery. However, because the Census Bureau shares updated information with the courts regularly, you could easily end up above the median income if the numbers continue to drop and the courts begin using the new data. Once the median income in your area falls to $49,999, it will become much harder for a judge to look at your case and grant you a discharge of all debts, because “most people” have it even worse than you do.

By meeting with a bankruptcy attorney in New Jersey, you can finally get the help you need, and it’s better to do it sooner rather than later, while the numbers are (hopefully) still in your favor.

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