Bankruptcy Basics for Northern and Central New Jersey Residents

As mentioned in a previous post, not everyone is eligible for Chapter 7 bankruptcy. The reason for this is to keep high earners from filing Chapter 7, and to limit Chapter 7 filings to those who truly cannot pay their debts. That said, bankruptcy isn’t necessarily out of the question for many here in Northern and Central New Jersey who think of themselves as “regular” or “high” earners with a generous disposable income. They just might prove eligible for Chapter 13 bankruptcy. Mitchell Law Offices is happy to provide the following guidelines – and we encourage you to schedule a free consultation with us.

Median Income

An easy way to tell if a Chapter 7 is for you is to answer this question: Is your income less than the median income for a household of your size here in New Jersey? If so, yes: you can file for Chapter 7. You, will, however, have to complete forms verifying the amount of your income.

Means Test

If your income is more than the median income for a household of your size, you’ll need to pass the Means Test. This test determines whether you have sufficient disposable income (income left after paying certain necessary monthly expenses) to repay at least some of your unsecured debts.

To complete the Means Test, you must first fill out a bankruptcy Chapter 7 Statement of Your Current Monthly Income, which solicits information regarding your marital/filing status and your average monthly income for the past six months. This average must take into account …

  • gross wages,
  • salary,
  • tips,
  • bonuses,
  • commissions,
  • alimony and any maintenance payments you receive,
  • child support,
  • amounts received for household expenses – like rent or utility contributions from roommates, for example,
  • net income from business operations or rental property,
  • unemployment compensation, and
  • pension/retirement income.

Next, you’ll complete a Means Test Calculation. This determines your disposable income, which is what’s left after allowed expenses. The form you’ll fill out asks for a lot of information and requires a careful assessment of many kinds of expenses. Among the most common you’ll list are those for …

  •  food,
  • clothing,
  • health care allowances,
  • housing and utilities,
  • vehicle operation and related expenses (as determined by the IRS’s National Standards),
  • monthly payments for car loans,
  • payments for secured debt (including your mortgage) and information about the property secured by the debt,
  • amounts paid for federal, state, and local tax,
  • mandatory payroll deductions (like union dues),
  • spousal or child support,
  • child care, and
  • charitable contributions.

After providing this information, you’ll be able to calculate your disposable income, and this will tell you if you’re eligible to file for Chapter 7 bankruptcy or not.

Next Steps

Clearly, figuring whether you’re eligible for Chapter 7 Bankruptcy is an indispensable part of the bankruptcy process. It’s a process that’s often tedious and demanding in the number of calculations necessary to reach a determination. That’s why it pays to seek savvy, experienced bankruptcy counsel – the kind attorney Douglas Mitchell has been providing Northern and Central New Jersey residents for many years. Contact Mitchell Law Offices and let Douglas help you through this process, answer your questions, provide expert representation … and get you off to a new start with a clean financial slate.