The means test calculates whether you qualify for Chapter 7 bankruptcy based on your income. Passing the test means qualifying for bankruptcy. As such, familiarizing yourself with how it works is crucial if you intend to file for Chapter 7.
The means test assesses your income against your expenses to determine if you can pay off your debts instead of discharging them through bankruptcy. Here is more on how it works.
Comparing income
The means test compares your household’s average monthly income over the last six months to the median income for a similar household in New Jersey. The amount varies, depending on the size of your household. You automatically pass the means test and can file for Chapter 7 bankruptcy if your income is below the median.
Calculating disposable income
It’s not the end of the road when your income exceeds the median income. You may still qualify for Chapter 7 bankruptcy if your disposable income is very low. This is arrived at by subtracting your essential expenses like rent, groceries and utilities from your income.
It is worth noting that these expenses are not based on your actual spending but on the average necessary expenses for people in similar circumstances. You may not qualify for Chapter 7 bankruptcy if you have enough disposable income to repay a portion of your debts. In such cases, creating a repayment plan through Chapter 13 bankruptcy may be your most viable option.
Remember, not everyone is required to pass the means test to qualify for Chapter 7 bankruptcy. Certain exceptions apply for specific individuals and debts. Reaching out for qualified assistance can help you navigate these and other complexities of bankruptcy and make decisions in your best financial interests.