Lofaro & Headley, LLC


Factors to consider when deciding on a personal bankruptcy

On Behalf of | May 26, 2020 | Bankruptcy

Personal bankruptcy comes in two types: Chapter 7 and Chapter 13. When deciding on which petition to file, a New Jersey resident may wish to learn more about the requirements for a Chapter 7 bankruptcy. 

As noted by Kiplinger magazine, the court may eliminate some unsecured debts, such as overwhelming medical and credit card bills, with a Chapter 7 petition. If successful, creditors may no longer collect on the balance discharged; a petitioner, however, must first pass a “means test” to qualify. 

Bankruptcy means test requirements 

New Jersey law requires individuals filing a Chapter 7 petition to pass a means test. The state believes that calculating a household’s monthly income and debt levels helps ensure that only individuals who cannot afford to repay their debts file for a Chapter 7 bankruptcy. 

By using a predetermined formula, the court verifies if petitioners have the means to repay their debts. Based on whether an individual earns more or less than the state’s median income level, a bankruptcy could result in having all consumer debts discharged or agreeing to a payment arrangement. 

Discharge of debts through Chapter 7 

When an individual’s income is high but does not pass The Garden State’s median income level, the court may discharge a portion of a petitioner’s debts. Filers with income levels substantially lower than the state’s median may see the court discharge all their unsecured debts. 

Some debts do not discharge with a Chapter 7 bankruptcy. These include taxes, child support and most student loans. The court will also not discharge any legal fines or fees. Individuals with discharged debts may keep a home and car but may need to refinance a mortgage or reaffirm an auto loan. 

Payment arrangement through Chapter 13 

Individuals who have a steady income and fail the means test may file a petition for a Chapter 13 bankruptcy. The court could order an affordable arrangement to repay creditors. Petitioners may also keep their house, cars and other assets.