NJ. Bankruptcy Lawyer Explains What Pay Check Deductions Are Permitted For a New Jersey Bankruptcy Case
A debtor’s projected household net (after tax) income must be less than their projected necessary and reasonable household expenses to receive a chapter 7 discharge. The trustee reviews the pay stubs of the debtor, the debtor’s non filing spouse, and any other household members to ensure that their pay do not include disallowable deductions. The typical allowable deductions include the following: any and all taxes; health insurance; dental; medical; union dues; precriptions.
Generally, any deductions for non essential items will be added back to the net income. For example, funds deducted for items such as savings will be added back to the net income, resulting in the actual allowable net income. If the court permitted savings as an expense, the debtor could reduce thier net income to any amount by deducting additional savings. Sometimes a debtor will deduct funds from their gross income for a mortgage and/or an auto payment. Such payments may be deducted. However, the debtor cannot take the same deduction as an expense on the bankruptcy expense schedules.
This pargraph explains the allowable deductions in a New Jersey chapter 7 bankruyptcy case. Pension or pension like deductions are typically not permitted unless the deduction is mandatory. Most companies do not mandate that their employees contribute to their pension. However, various government entities typically require their employees to contribute a portion of their pay towards their pension, such as the State of New Jersey. If the debtor’s employer requires a contrbution to thier pension, the deduction is permissable. Consequesntly, State of New Jersey employees may use their pension contribution deduction as an allowable deduction. However, a pension contribution from virtually all non governmental entities is not allowable, as the deduction may be stopped to allow additional net income. The bankruptcy code does not specifically deal with pension loan payments. However, generally, all chapter 7 trustee’s allow the deduction on each pay.
The allowable chapter 13 deductions may differ from the chapter 7 deductions based on the trustee who is administering the case. The bankruptcy code permits a reasonable voluntary pension contribution as an allowable deduction, in a New Jersey chapter 13 case only. Therefore, a voluntary contibution to a pension that is not required, may be deducted from a person’s pay to arrive at the net income amount. In a chapter 13, a debtor may also use a pension loan as allowable expense. However, the amount of the deduction and the manner in which the deduction is applied may vary with each trustee.
Tax refunds appear to be applied differently based on the assigned chapter 7 and chapter 13 trustee. A tax refund may be considered an asset in a chapter 7 case depending on the date of the filing. A tax refund may be considered an asset, additional income or disreguarded, in a chapter 13, based on the time of the filing and the assigned trustee.
Contact Robert Manchel at 866 503 5644 to discuss your NJ. bankruptcy law questions.