The Chapter 7 Means Test Explained

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Most people in Morristown can sympathize with those struggling with debt. At the same time, however, there may still be a stigma associated with personal bankruptcy.

Many might believe that it is simply a way for people to escape from having to pay their debts. The fact that (according to information compiled by the American Bankruptcy Institute) over 63 percent of non-business bankruptcy filings in 2018 were made under Chapter 7 (which allows debts to be discharged) might be seen as affirming this assumption.

Yet federal bankruptcy regulations are structured in such a way as to make it difficult for people to abuse the debt relief privileges afforded by bankruptcy. The Chapter 7 means test is an example of this. It regulates Chapter 7 eligibility by taking a closer look at the income and debts of those seeking bankruptcy protection.

New Jersey's Income Guidelines for Chapter 7

Per the website for the Administrative Office of the U.S. Courts, before the means test is applied to one’s bankruptcy case, their current monthly income is compared to the median value for their unique demographic for their state.

If your current monthly income is less than New Jersey's median, you automatically qualify for Chapter 7. If your income is over the median, there will be a review of your total monthly income over the past 60 months, or five years. That amount must be lower than either 25% of your nonpriority unsecured debts or $12,850 for you to file Chapter 7.

What If You Don't Qualify?

If one does not qualify to file for Chapter 7 bankruptcy due to the means test, their case is often converted into a Chapter 13, which affords them bankruptcy protection with the understanding that their debts will be repaid over a period of 3-5 years.

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