When determining if you can take advantage of a Chapter 13 bankruptcy or a Chapter 7 bankruptcy, a big part of that determination is the means-test. Your income level, as well as the number of people in your household, will determine if you qualify for Chapter 13.
Our New Jersey lawyers can provide further assistance on explaining how the means-test and your income level affects a Chapter 13 bankruptcy.
A person’s level of income will determine if they pass the means-test for Chapter 13 bankruptcy, which ultimately determines how much may need to be paid back to their general unsecured creditors. Social Security income is not included when calculating a means-test. In reality, if that is a debtor’s only source of income, and they are in Chapter 13, we include it on their budget to show their ability to make that payment, but otherwise, all incomes and earnings are used.
If they do not have enough income, they may not be able to confirm a plan of reorganization the way they intended. For example, someone may want to cure arrears on their mortgage, but they have lost their job, or they are making less money than when they took out the mortgage. We can calculate their budget based on their present income but there may not be enough money left to pay back those arrears. In that case, we may need to come up with a different payment plan.
Our bankruptcy attorneys will discuss the situation with each particular debtor and discuss different options, so we can try to accomplish their goals.
Your marital status and the presence of children will help determine the median income for the Chapter 13 Means Test. If you are married and have two kids, that means you have a household size of four. The median income in New Jersey for a household of four is much higher than if it was just a household of one. It helps to have a lower disposable income for the purposes of bankruptcy, which might ultimately require you to pay less to unsecured creditors. The Bankruptcy Code allows you to duck higher amount of expenses because of the household size, meaning more money for food or clothing to cover a household of four as compared to a household of one.
Conversely, some debtors may just want to file bankruptcy on their own even though they are married, because their spouse does not have any debt, or has very little, and does not want to file jointly. But that person’s income may have to be used for the Means-Test. It could force them to be in a Chapter 13 when they might otherwise be in Chapter 7 if they were not married because it must consider their household income, regardless of whether both spouses are filing or not.
It is important to consider the feasibility of the bankruptcy claim. A debtor may share what they want to do, but when we calculate that plan, it may not work based on their budget, income, or other circumstances. Those are all factors we would discuss with them when we put a plan together. We only want to file a plan that a debtor can complete.
Call our New Jersey law firm to discuss how your income and the means-test factor into your Chapter 13 bankruptcy filing, so we can come up with a plan that is feasible and achievable.
Gillman Capone Law Group
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