Using The Means Test To Determine Whether You Qualify To File Chapter 7 Bankruptcy
If you want to file a Chapter 7 Bankruptcy, the law requires that you complete and pass the means test. The means test is basically a screening process used by the Bankruptcy Court to determine if a person has the financial ability to pay back their debts.
If the means test shows that you are able to pay, then you generally cannot file a Chapter 7 bankruptcy and must instead file a Chapter 13 bankruptcy.
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 not true. 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 compares your household income to the median income of a New Jersey family the same size as yours. As of November 1, 2020, the median annual household income in New Jersey is:
- $71,064 for a single earner ($5,922 /month)
- $87,423 for a family of two ($7,286/month)
- $111,046 for a family of three ($9,254/month)
- $132,708 for a family of four ($11,059/month)
- Add $9,000 a year for each person beyond four
If your average household income for the past six months is less than the median monthly income, you pass the test and qualify to file a Chapter 7 bankruptcy. Do not panic if your income is higher than the median; you may still qualify for Chapter 7, but we must first move to the next step.
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 a certain amount of debt as set forth in the Bankruptcy Code in the next 3 to 5 years. If the answer is yes, then you must file for Chapter 13 instead of Chapter 7.
What Expenses May Be Deducted?
What expenses 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 quickly be able to determine if you are eligible for Chapter 7 so you can decide how best to get control of your debt and get a Fresh Start.
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.