New Jersey Bankruptcy Law: A Guide to the Means Test

New Jersey bankruptcy law can be complex, especially when navigating the requirements for filing, including the often-dreaded means test. The means test is designed to determine if an individual has enough disposable income to repay a portion of their debts. Understanding this test is essential for anyone considering bankruptcy in New Jersey.

The means test primarily applies to Chapter 7 bankruptcy, which is favored for its ability to discharge unsecured debts quickly. To qualify for Chapter 7, debtors must pass the means test, which evaluates their income against the median income in New Jersey.

The first step in the means test involves calculating your current monthly income (CMI). This is done by averaging your income over the six months before your bankruptcy filing. If your CMI is below the median income for a household of your size in New Jersey, you automatically qualify for Chapter 7 bankruptcy.

If your income exceeds the median, the next phase of the means test comes into play. You will need to complete the means test form (Form 122A-2). This form examines your monthly expenses in several categories, such as housing, transportation, and healthcare. Your actual monthly expenses are compared against the national and state averages to determine your disposable income.

Your disposable income is the amount left over after subtracting your allowed expenses from your current monthly income. If your disposable income is low enough, you may still qualify for Chapter 7 despite your higher income. Conversely, if your disposable income indicates that you can pay back a portion of your debts, you may be directed towards Chapter 13 bankruptcy instead, which involves a repayment plan over three to five years.

It's crucial to gather all necessary documentation, including pay stubs, tax returns, and bank statements, to accurately complete the means test. Errors or omissions can lead to complications in your bankruptcy filing.

Debt filers should also be mindful that the means test is not one-size-fits-all. Unique circumstances, such as abrupt income changes or specific expenses related to medical emergencies, can impact the outcome. Consulting with a qualified bankruptcy attorney in New Jersey can provide personalized guidance through the means test and overall filing process.

In conclusion, understanding the means test under New Jersey bankruptcy law is vital for anyone contemplating bankruptcy. Whether you're considering Chapter 7 or Chapter 13, knowing how the test works, what documentation is needed, and how to navigate potential complexities will empower you in your financial journey.

If you're facing overwhelming debt, take control of your financial future by exploring your options and considering whether bankruptcy is the right path for you. Remember, the means test is just one step in the process, but being informed can make all the difference.