New Jersey debtors can file for bankruptcy under Chapter 7 or Chapter 13. Either option has its pros and cons, but some debtors might not qualify to file under Chapter 7 regulations.
A major determinant of who can file under Chapter 7 is passing the means test.
Purpose of means test
The means test was put into effect to determine which debtors had the means to repay their debts and which ones were truly insolvent. From a creditor’s point of view, it can be better to receive a reduced amount over time than to completely write off the debt. Hence, the means test.
How does it work?
The means test is an income-to-debt ratio that also factors in things like:
- Your household expenses x 1 month
- Average monthly expenses for comparable households
- Number of people in household
- Health care and childcare expenses
- Credit debt load
- Attempt(s) at credit remediation
The bankruptcy courts also look at the petitioner’s monthly income (x six months) prior to filing in comparison with New Jersey’s median income of $48,523 for a one-person household.
Chapter 7 is for lower wage earners
The court takes the position that if you can afford to pay off your debts, you should do so. They also recognize that some people are truly indigent and in desperate need of the kind of debt relief only a Chapter 7 bankruptcy discharge can provide.
Wipe the slate clean with Chapter 7
Everybody deserves a second chance to get it right. You can forge the way to financial freedom by discharging your debt in a Chapter 7 bankruptcy.
