What Is The Bankruptcy Means Test in New Jersey?

If you are thinking about filing a New Jersey bankruptcy, you are not alone. Many people have filed bankruptcy in New Jersey to help them start over. Take for example, Toni Braxton, a five-time Grammy award winner who was riddled with 3.9 million dollars of debt, or Larry King, a late night talk show host who was forced to file bankruptcy after an expensive divorce. If these people are not enough to convince you, then take a look at native New Jersey rapper, Lil Kim. She filed a New Jersey bankruptcy last year to stop a creditor who sought to auction off her home. Bankruptcy is not an easy decision, but can be a tool to help relieve you of overwhelming debt, and get you back on the path to enjoying your life in the Garden State.

Once you have determined that you want to move forward with filing bankruptcy, you will need to see if you qualify for a Chapter 7 bankruptcy in New Jersey. In 2005, Congress reformed the Bankruptcy laws to prevent people from filing fraudulent bankruptcy petitions. A major prerequisite was implemented, “the Means Test”. The implementation of the Means Test made it more difficult for people to qualify because they had to fall below a certain income level. This was a way to prevent people with high incomes from wiping out all of their debt in a Chapter 7 bankruptcy without having to pay any amount back to their creditors. 

In order to qualify for a Chapter 7 bankruptcy in New Jersey, you will need to gather your financial documents. Those documents include six months of paystubs (if you are married and living in the same household, then you will also need your spouse’s paystubs), a list of your monthly expenses, and your debts. The Chapter 7 Means Test in New Jersey, takes your household income and averages it over the last six months. It then compares your average household income to the median income of a similar-sized household in New Jersey. If you fall below the household median income for a family of similar size in New Jersey, then you qualify for Chapter 7 bankruptcy relief. However, if you are above the median income for New Jersey, then you will have to proceed to the second part of the Means Test, which looks more closely at your income and expenses. 

It is important to understand that qualifying for bankruptcy in New Jersey under the Means Test is just the first step to qualifying for a Chapter 7 bankruptcy. You will also have to provide the Court with a list of your monthly expenses and your household income. If you have a significant amount of money left over each month, then the Bankruptcy Court could require you to convert your case to a Chapter 13 bankruptcy. The Court will presume that since you have money left over each month, those funds should be used to pay your creditors.

There is also an exception to the bankruptcy Means Test in New Jersey for people who have primarily business debts. Under New Jersey law, the exception provides that if your debt is more than 50% business debt, you do not have to qualify under the Means Test. Therefore, even if your household median income is above the average median income of similar size in New Jersey you are exempt from needing to qualify under the Mean Test.

New Jersey Median Income Levels

Discharge in Bankruptcy for New Jersey 

A  New Jersey bankruptcy discharge is the result you want when you file for bankruptcy. The New Jersey bankruptcy discharge  releases you from personal liability for certain debts. In other words, you are no longer required to pay your creditors any debts that have been discharged. The New Jersey Bankruptcy Court will issue a discharge order prohibiting creditors from taking any collection action against you. The discharge time varies depending on which chapter of bankruptcy you file. In a Chapter 7 bankruptcy the New Jersey Bankruptcy Court usually grants the discharge 60 days after the first date set for your 341 hearing.  

New Jersey  Means Test Calculator

In order to determine whether your income is below New Jersey’s median income level, you will need to calculate your family’s gross income within the last six months. Income includes all sources of income: rental income, pensions, retirement plans, amounts paid by others towards your household expenses, unemployment, and wages.Once you figure out your household median income, you can compare it to New Jersey’s median household income. If you fall below the average, there is a presumption that you pass the Chapter 7 Means Test. However, if your income is higher than New Jersey’s median income level for your family size, then you will need to complete the next portion of the Means Test. If you are over the median income limit and your income has recently declined, then waiting a few months may help bring your income under the median level for New Jersey. 

To help you with your calculations you can use the Chapter 7 New Jersey Means Test Calculator. It is important to note that figures for the New Jersey Means Test Calculator are updated every few months. Thus, the calculations may be outdated. We encourage you to use the tools we provide at Upsolve. Our information is kept current so you can trust the information we provide is correct. 

What Happens If I Fail The Means Test for New Jersey?

If you fail the Chapter 7 Means Test, then you may want to start by reviewing the information you entered to make sure they were accurately entered. Sometimes, even a slight mistake can throw off the calculation. If you still do not qualify, then you may want to review your expenses on the second part of the Means Test to ensure you did not forget any expenses. Some of the most common deductions on the Means Test that you may have forgotten are: taxes, involuntary deductions, disability, term life insurance, mortgage payment, car payments, other secured debt payments, Court-ordered payments, child care, health care, education for employment or a disabled child, charitable contributions, care of a person who is elderly, chronically ill, or has a disability, and expenses for special circumstances. If you still “fail” after reviewing your deductions, then you may be able to wait a few months to see if you qualify. Since the Means Test averages your last six months, if your income changes you may qualify down the road. If you have exhausted all of your options, then Chapter 13 bankruptcy may be in your best interest.

If you believe that you have “failed” the bankruptcy Means Test, then you may want to speak with a local bankruptcy lawyer. Often times, bankruptcy lawyers give free consultations.  If you are filing bankruptcy without an attorney, you can follow Upsolve’s steps to file a Chapter 7 bankruptcy in New Jersey. However, if your case seems  complicated, and you are worried you do not qualify under the Means Test, we suggest reaching out to a local New Jersey bankruptcy lawyer.