The bankruptcy means test under 11 U.S.C. § 707(b) determines whether you qualify for Chapter 7 bankruptcy in New Jersey by comparing your household income to the NJ median income for your household size. If your income is below the NJ median, you automatically qualify for Chapter 7. If above, a detailed calculation of your disposable income determines eligibility. Failing the means test does not prevent bankruptcy — Chapter 13 remains available as an alternative.
How the Means Test Works
The means test is a two-part analysis. The first part compares your average monthly household income over the six months preceding your bankruptcy filing to the applicable NJ median income for a household of your size. This “current monthly income” includes wages, salary, business income, rental income, pension income, and most other sources of income (Social Security is excluded). If your current monthly income, annualized, falls below the NJ median, you pass the means test and qualify for Chapter 7 without further analysis.
NJ Median Income Thresholds
NJ median income figures are published and updated periodically by the U.S. Trustee Program based on Census Bureau data. New Jersey consistently has among the highest median incomes in the nation, which means more NJ residents pass the means test compared to residents of lower-income states. The thresholds vary by household size (1 person, 2 persons, 3 persons, etc.), with higher thresholds for larger households. Because these figures are updated regularly, the applicable threshold depends on your specific filing date. A bankruptcy attorney can provide the current figures and determine how they apply to your situation.
Part Two: The Disposable Income Calculation
If your income exceeds the NJ median, the means test proceeds to a detailed disposable income calculation. This second part subtracts allowable expenses from your current monthly income to determine whether you have sufficient disposable income to fund a Chapter 13 repayment plan. Allowable expenses include IRS-approved Local Standards for housing and utilities, IRS National Standards for food, clothing, and other items, actual payments on secured debts (mortgage, car loans), taxes and mandatory payroll deductions (Social Security, Medicare, income tax withholding), health insurance premiums, child care and education expenses, and court-ordered payments (child support, alimony). If, after deducting all allowable expenses, your disposable monthly income multiplied by 60 (representing a 5-year Chapter 13 plan) results in an amount below a specified threshold, you still qualify for Chapter 7.
What Happens If You Fail the Means Test
Failing the means test means you are presumed not eligible for Chapter 7 bankruptcy. However, this is not the end of your options. You can file Chapter 13 bankruptcy, which does not have a means test for eligibility and allows you to reorganize debts over a 3-5 year plan. Chapter 13 is often the better choice for homeowners facing foreclosure regardless of means test results because it provides a mechanism to cure mortgage arrears. You can also rebut the presumption of abuse in special circumstances, such as serious medical conditions, military service, or other documented circumstances that cause expenses to deviate significantly from the standard deductions.
Special Considerations for NJ Filers
NJ residents face unique considerations in the means test. The high cost of living in NJ means that many filers with above-median incomes still qualify after deducting actual housing and transportation costs, which tend to be higher in NJ than national averages. Property taxes in NJ are among the highest in the nation and are a significant deductible expense on the means test. Commuting costs in NJ, particularly for residents who commute to New York City or Philadelphia, can also be substantial deductions.
Call Friscia & Associates Today
The means test involves complex calculations and strategic decisions about which expenses to claim. Call Friscia & Associates at (973) 500-8024 to speak with a NJ bankruptcy attorney who can run the means test analysis for your specific financial situation and advise you on the best bankruptcy chapter for your needs.
Legal Disclaimer: The information on this page is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this content. Median income figures and expense allowances change periodically. If you need legal advice, please contact our office to schedule a consultation.