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What is Means Testing in Bankruptcy?

Means testing is a standardized cash flow analysis to determine whether you can afford to pay a portion, if not all, of your debt through a chapter 13 repayment plan.  In other words, a test to determine whether you have the “means” to pay all or a portion of your debts.

The test is in three parts, and if you pass a part, you do not have to go on to the next.  Those parts are:

  • Is your gross monthly income (not including Social Security benefits) for the six months leading up to the month in which you file the bankruptcy, above the median income in New Jersey for your family size?
  • If so, does the deduction of standard and non-standard expenses from that gross income (including payroll taxes) result in money remaining (disposable income)?
  • If so, is your disposable income sufficient to pay some minimal amount of your debt back to creditors?

If you fail all three parts, then there is a presumption of bad faith should the debtor try to file a chapter 7, rather than a chapter 13 repayment plan.  Although this presumption can be rebutted, it can be difficult, and can act as a barrier for debtors to get a fresh start in a chapter 7.

Means testing is a complicated process. Do not assume, based on your own calculations from the information presented here that you do not qualify for a chapter 7.  Most South Jerseyans can file a chapter 7 with no problem and no means test complications.

If you live in South Jersey and are considering filing bankruptcy, call my office at 856-432-4113 or contact me through this site for a free consultation to discuss your case. If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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