NJ Chapter 7 Bankruptcy Lawyer

Can You Pass the Chapter 7 Means Test? Bankruptcy Piggy Bank

In the United States, there are six types of bankruptcy recognized by federal law. They are organized and numbered by chapter. Chapter 7 bankruptcy is especially helpful for individual consumers who have high unsecured debts like medical bills, credit card debt and unsecured personal loans. It is the most common type of bankruptcy filed in the U.S. Bankruptcy Court. Whether or not an individual qualifies for Chapter 7 bankruptcy is determined by a test known as the Chapter 7 means test.

The Chapter 7 means test’s primary objective is to determine a prospective filer’s disposable income. One’s disposable income is the amount of money that is left available after all of his or her recurring expenses are subtracted from his or her average monthly income. One’s average monthly income is determined by taking an average of the amount of money he or she has taken home after taxes each month for the past six months prior to filing for bankruptcy. A high disposable income makes it more difficult for an individual to file for Chapter 7 bankruptcy.

Passing the Chapter 7 Means Test

Before taking the means test, the potential filer must determine where his or her monthly income falls in relation to the median income in his or her state. In New Jersey, the median income for a single-person household was $59,906 in 2013. For households consisting of two people, the median income was $68,284. For three and four-person households in New Jersey, the median incomes were $83,292 and $101,682, respectively. New Jersey consistently has one of the highest median income levels in the country.

Any person who makes less money than his or her state’s median income amount will pass the means test without the need for further questioning – they qualify and may file for Chapter 7 bankruptcy. For those who make more money than their state’s median income, the test becomes more complex. This is where equations to find one’s disposable income enter the picture. If one’s disposable income is higher than a set amount after paying off monthly expenses, he or she may not file for Chapter 7 bankruptcy. This amount is calculated by taking the consumer’s family size, area within the state, and living expenses into account and creating a model budget for that consumer.

Chapter 13 May be a Better Fit

Any person who passes the Chapter 7 means test is free to file for Chapter 7 bankruptcy. Those who don’t pass, but have primarily consumer debt, may be qualified to file for Chapter 13 bankruptcy. The main difference between a Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 bankruptcy does not require its filer to repay any money to the owner or owners of his or her debt. Under Chapter 13, the court sets up a three to five year repayment plan and closely monitors it until the consumer’s debt is paid off.

Chapter 7 bankruptcy is a chance to unload an insurmountable pile of debt and move forward with a clear financial slate. If an individual passes the Chapter 7 means test and opts to file for Chapter 7 bankruptcy, the trustee in charge of administering the bankruptcy estate sells all of the filer’s nonexempt property and uses the profit of the sale to pay back the consumer’s creditors as much as possible.

What Property is Exempt from a Bankruptcy?

Exempt property is property that is deemed necessary for the consumer to live a reasonably comfortable lifestyle and continue to earn a living. Examples of exempt property include:

  • Pensions
  • Jewelry and clothing, up to a certain value amount
  • Tools that the consumer uses professionally, up to a certain value amount
  • Earned, but still unpaid wages
  • Public benefits, such as social security, welfare benefits, and unemployment benefits
  • Motor vehicles, up to a certain value amount
  • Necessary furniture and household goods, such as towels and a bed
  • Monetary compensation for personal injuries

Other items, regardless of their sentimental or monetary value, may be liquidated in an effort to raise enough money to pay off the consumer’s debt. These items are considered to be nonexempt property. Nonexempt property includes, but is not limited to, personal collections, antiques, family heirlooms, secondary vehicles and musical instruments, unless they are used as professional tools.

Considering a Chapter 7 Bankruptcy? Contact Us Today.

A Villani and DeLuca, NJ Chapter 7 Bankruptcy Lawyer can help you figure out if Chapter 7 bankruptcy is right for you. When you contact our firm, you’ll have the chance to speak with one of our NJ Chapter 7 Bankruptcy Lawyers over the phone or in an in-person consultation, free of charge. For guidance toward making the best possible bankruptcy decision, call Villani and DeLuca today at (732) 965-3350. Their knowledge and compassion has helped Ocean County and Monmouth County residents with legal matters since 1996.