Thinking about filing for Chapter 7 bankruptcy?
It’s not available to everyone. Anyone who wishes to file Chapter 7 must pass the means test. The means test was first established in 2005, under the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA).
The means test is a two-part test.
The Income Limit Test
The first test of whether you can file Chapter 7 is if your income is below the median income for the state in which it is filed.
Here in New Jersey, the median income is currently $75,321 for a family of 1, $92,669.00 for a family of 2, $117,697.00 for a family of three, and so on.
You can see the chart for larger family sizes here. The amounts change every year.
You don’t have to proceed further if you meet the median income test. You can file Chapter 7 in most cases.
The Discretionary Income Test
If you make more than the median income, you have to demonstrate that you don’t have the discretionary income to pay your debts, even if it must be done gradually and over time.
You’ll provide schedules showing how much you spend on essentials like housing, food, utilities, clothing, and medical bills. Allowable expenses aren’t counted against you.
Anything you’re not spending on allowable expenses is turned against you. In addition, if you spend more on certain categories than the IRS standard rent payment for your region, you may be penalized for that.
Qualifying Service Members and Veterans
In 2018, Congress passed the Honoring American Veterans in Extreme Need (HAVEN) Act. Under this act, the service income of disabled veterans, reservists on active duty, and National Guard members aren’t included in any household income calculations.
If your income falls into these categories, you might pass the means test when you otherwise wouldn’t.
Get Help Today
While this information may seem stressful, 90% of those who file bankruptcy can file Chapter 7 based on their income alone. Nevertheless, reviewing your unique situation with a bankruptcy attorney is important. Chapter 7 may not be your best option.
Contact our office to schedule a free consultation today.