Chapter 7 Bankruptcy: The Myth Of The Means Test

In 2005, the bankruptcy law changed significantly. A large number of people in financial trouble rushed to file for Chapter 7 before the changes went into effect to avoid the new and often burdensome provisions. Many people and attorneys believed that it would be impossible to file for Chapter 7 bankruptcy after the changes. However, this has proven not to be true. Lawyers who know the complexities of the law can still guide their clients through Chapter 7 bankruptcy — even if those clients have significant income.

The bankruptcy means test initially determines whether your income is low enough for you to file Chapter 7 bankruptcy without a consideration of your expenses. If your income, based upon the prior six months, is lower than the median family income for a household of comparable size, you pass the means test. If your household income is over the median, then detailed expense calculations must be performed to determine your means test surplus, if any. These calculations deduct allowable specific monthly expenses from your current monthly income, to determine your disposable income. The higher your disposable income, the more likely you won't be allowed to use Chapter 7 bankruptcy without a presumption of abuse and may need to file a Chapter 13. Even if this presumption of abuse arises, there is an opportunity to rebut the presumption based upon the specific facts of your case.

You May Have More Options Than You Think Under Chapter 7 Bankruptcy Law

At the Morristown law office of Ast & Schmidt, P.C., we represent clients throughout New Jersey in Chapter 7 bankruptcy proceedings. Many clients are surprised that they don't have to be unemployed or without any assets to qualify for Chapter 7.

According to the bankruptcy laws, people with incomes lower than the median family income are generally eligible to file for Chapter 7 protection. In New Jersey, the median family income is one of the highest in the country. Many people qualify here who may not necessarily qualify for Chapter 7 bankruptcy in other states. In New Jersey, you may still earn a significant monthly income and qualify for Chapter 7 bankruptcy.

The key to passing the means test is to have monthly expenses that are allowable under the means test. People with high mortgage payments and car loans may be allowed to deduct these payments when calculating their means test for determining eligibility for Chapter 7 bankruptcy.

It is extremely important to have an attorney who knows bankruptcy law and is an experienced debtor's attorney who can do the math to pass the means test and fight to protect your interests. At the law office of Ast & Schmidt, P.C., this is our goal. Most of our clients who want to file a Chapter 7 bankruptcy are able to file despite the means test.

In a limited number of cases, however, our clients do file Chapter 13 bankruptcy solely due to the means test. Chapter 13 is often the better choice in situations involving foreclosure or homeowners with significant equity in their properties.

Contact A Morristown Bankruptcy Means Test Attorney

Call Ast & Schmidt, P.C., at 973-984-1300 to schedule a free, initial consultation with an experienced bankruptcy lawyer. You may also simply complete our online contact form.

We offer flexible hours — Monday through Friday — with all meetings by appointment. Evening meetings are available. Our office is conveniently located across the street from the Morris County Mall, and we have off-street parking.

Ast & Schmidt, P.C., is a debt relief agency. We help individuals file for bankruptcy relief under the Bankruptcy Code. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.