To determine whether or not bankruptcy is an appropriate solution for debt relief, New Jersey courts have established a means test.
Understanding Chapter 7 means test
A means test is a way for the state to determine whether a person qualifies for Chapter 7 bankruptcy. In other words, it assesses the debtor’s ability to pay their creditors. If the bankruptcy court finds that they can, they will fail the test; however, if they can’t, they will pass and will then be eligible to declare bankruptcy.
How it works
The means test in New jersey has two parts: First, the court looks at the applicant’s gross income over the past six months and next evaluates their expenses. If their income is below the state median, they will automatically pass the means test. If the applicant’s income is above the state median, the court will take a closer look at their expenses to see if they are “reasonable.”
The judge determines reasonability by looking at:
- Family size
- Housing costs such as mortgage or rent, repairs, etc.
- Transportation costs such as car payments, insurance, gas, etc.
- Childcare and education expenses
- Medical bills
After passing the means test
The applicant can move forward with the bankruptcy process if they pass the means test. This includes:
- Filing a petition with the court
- Attending a meeting of creditors
- Completing a financial management course
- Obtaining a discharge of debts
However, the court will not discharge all debts. Regardless of your circumstances, you must repay child custody and alimony payments, student loans, taxes owed and court-ordered fines and restitution payments. However, a judge can dismiss credit card debts, medical bills and personal loans that you haven’t finished paying.
You cannot appeal to redo a failed means test in New Jersey. Therefore, it’s important to adequately prepare before filing the Bankruptcy Form 122 by gathering all documentation related to your income and expenses so that you have a clear understanding of your financial situation. If you still fail, there are other options to explore, like applying for Chapter 13.