Given the choice, most people struggling with insurmountable debt would choose to file Chapter 7 (liquidation) bankruptcy over Chapter 13 (reorganization). Chapter 7 is faster, cheaper and usually results in a full discharge of debts. However, a debtor will not qualify for Chapter 7 if their income is too high. In that event, there is a “presumption of abuse” that the debtor must overcome.

If the debtor’s current monthly income exceeds the family median income for their state, they must pass the “means test,” which analyzes their income and offsets it by allowable expenses. If disposable income remains after the test calculations, a presumption arises that the debtor can afford a Chapter 13 plan and that it would be an abuse of the bankruptcy process to continue under Chapter 7.

This presumption of abuse, however, is not necessarily conclusive. If the debtor can prove the existence of special circumstances beyond their control, there may be allowable adjustments to the expenses or income as indicated on the means test. Special circumstances are those that left the individual with no other alternative than to take on debt. They may include the following:

• A call to active military duty
• A significant illness or medical condition requiring treatment
• A significant reduction in income, such as through loss of a job or another regular stream of revenue that had been factored into the means test calculation
• Unexpected expenses, such as property losses due to thefts, accidents or catastrophes like fires, floods or devastating storms.
• Substantial changes in the debtor’s personal life that affect expenses, such as childbirth, divorce or caring for a disabled family member.

Special circumstances are by nature individualized and require documentation to verify. Rebutting the presumption of abuse demands a careful analysis of the facts by a knowledgeable and experienced bankruptcy attorney. If the presumption cannot be overcome, there is still the option of converting the bankruptcy to a Chapter 13, which allows for creating a plan that limits debt repayment to the amount that the debtor’s disposable income allows.

At the Law Offices of James C. Zimmermann, we understand the intricacies of the bankruptcy code and we analyze each client’s situation to decide on the best options to pursue. With locations in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley, we represent clients throughout New Jersey. Call 973-764-1633 or contact us online to schedule a consultation today.