Using The Means Test To Determine Whether You Qualify For Chapter 7 Relief
Those wishing to file for relief under Chapter 7 of the Bankruptcy Code must first complete the means test. Essentially, this is a screening process used to determine whether a person has the ability to pay back debts. If the means test shows that one is able to pay, then Chapter 7 debt liquidation is usually not an option and the person must instead file for Chapter 13 debt reorganization.
At Levitt & Slafkes, P.C., we work with the means test every day. We know all of its details and can analyze your unique financial situation to determine whether you are eligible to file a Chapter 7 bankruptcy. There is much misinformation out there saying that it is almost impossible to qualify for a Chapter 7, but that is simply not accurate. Most of our clients qualify to file a Chapter 7 bankruptcy.
Means Test Step One: Comparing Your Income To The State Median
The first part of the test is a simple comparison of your household income to the median income of a New Jersey family the same size as yours. The median annual household income in New Jersey is:
- $62,149 for a single earner ($5,179/month)
- $73,367 for a family of two ($6,197/month)
- $92,489 for a family of three ($7,707/month)
- $113,455 for a family of four ($9,455/month)
- Add $8,400 a year for each person beyond four
If your income for the past six months is less than the median monthly income, you pass the test and qualify for Chapter 7 bankruptcy. Do not panic if your income is higher than the median; you may still qualify for Chapter 7, but we must move to the next step first.
Means Test Step Two: Calculating Disposable Income And Unsecured Debts
At this point, certain expenses are deducted (subtracted) from your gross income. The test is whether, after expenses, you can afford to pay off at least $7,700 in the next five years. If the answer is yes, then you must file for Chapter 13 instead of Chapter 7.
What then are the expenses that can be deducted from gross income? The Internal Revenue Service (IRS) decides what is deductible, and the list is quite complex. Our attorneys will explain the details when you meet with us, but here are some examples of expenses that can be deducted:
- Food, clothing and household supplies
- Certain health care and dental costs
- Mortgage/rent payments
- Vehicle payments and operating expenses
- Alimony and child support
Once all of the allowable expenses are deducted from income, the majority of people do qualify for Chapter 7 relief. Do not be intimidated or discouraged by the means test. It is something that we as bankruptcy lawyers work with every day. We will be able to give you an answer on your eligibility quickly so you can make the decisions you need to make about how best to regain control of your debt.
Do You Have Eligibility Questions? Connect With Us For Answers.
Learn more about the New Jersey Chapter 7 means test and your eligibility for bankruptcy by calling the team at Levitt & Slafkes, P.C., today. You can reach our New Jersey firm at 973-323-2953 or you can send us an email. Your initial consultation is free of charge.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.