In general, for individuals living here in New Jersey and elsewhere across the country, there are two types of bankruptcies that can be filed: Chapter 7 and Chapter 13. Chapter 7 is for complete and full discharge — elimination — of qualified debts and Chapter 13 is a “reorganization” of qualified debts that requires repayment of some portion of the total debt. For obvious reasons, debtors prefer Chapter 7 since, when debts are discharged, the debtor is not required to make any payments to creditors on those debts. Indeed, creditors are prohibited from attempting to collect on discharged debts and creditors who try can be punished quite severely under the Bankruptcy Code.
However, not all debtors are eligible for Chapter 7. Chapter 7 bankruptcies are legally complex and, thus, it is essential to consult with and retain an experienced New Jersey Bankruptcy attorney like those at Silverberg Law, LLC, to handle your bankruptcy filing.
To determine eligibility for a Chapter 7 discharge here in New Jersey, courts use an income threshold and a legal evaluation called the “means test.” Courts begin by calculating and comparing the debtors gross monthly income to the median gross income for where the debtor lives for a family of the same size. For example, assume the debtor lives in New Brunswick and has a household size of one. According to statistics from the US Census Bureau, currently, the median gross monthly income for a single person in New Brunswick is about $5,800. For a family of four, the median gross monthly income is about $10,800. Thus, if a single person living in New Brunswick has gross monthly income of $4,000, then that debtor is eligible for a full discharge under Chapter 7.
However, even if the debtor’s gross monthly income exceeds the geographic area’s median monthly income, many debtors still are eligible for Chapter 7 because of the means test. In simple terms, the means test compares income to expenses and evaluates how much money is available — and will be available in the future — to make repayments on the total debt. Calculating a debtor’s expenses is based partly on the debtor’s actual expenses, but is also based on guidelines issued by the IRS for what are reasonable monthly expenses for where the debtor lives. The means test also accounts for any recent “material” changes in the debtor’s financial circumstances such as the recent loss of a job.
Let’s take an example. Assume that our debtor is a single person living in New Brunswick with gross monthly income of $7,000. Since $7,000 exceeds the median gross monthly income for the area — $5,800 — then the debtor must satisfy the means test. At this point, all of the debtor’s expenses are added up including rent, food, utilities, phone, taxes, alimony/child support, clothes, payments to secured creditors (like a car payment), child care, gasoline and other transportation expenses, health care, costs of schooling, union dues and many more categories of allowable expenses. Let’s assume, in our example, that our debtor’s expenses add up to $7,000 which equals the debtor’s income. In this example, the debtor would likely be eligible for Chapter 7 discharge since there is no “extra” income to make repayments on the debts.
Contact an Experienced New Jersey Bankruptcy Lawyer Today
For more information or if you need to file bankruptcy to protect you and your family from creditors, contact the experienced and proven New Jersey Bankruptcy attorneys at Silverberg Law, LLC. We have 30 years of experience helping our clients in New Jersey and New York. We provide aggressive, hands on representation in all matters we handle. Use our “Contact Us” link or call (201) 252-7000 to schedule a free consultation.