One of the more common questions asked by people experiencing serious debt issues who have a bankruptcy case review is “Do I qualify for a Chapter 7 bankruptcy?” Although the answer may be complicated, it is the most important starting questions for many people and families we meet.
A Chapter 7 Bankruptcy may be filed by individuals, married couples, or businesses. Since we are focused in this piece on qualifying for a Chapter 7 bankruptcy, we are focused on individuals and married couples – often called a “personal bankruptcy”. In a Chapter 7 Business Bankruptcy, there is no test of income to qualify as the case only involves a liquidation of business assets.
The goal of a personal Chapter 7 Bankruptcy is to obtain a “fresh start” by eliminating unsecured debt – such as credit cards, medical bills, collection accounts, etc. – through a Discharge. While a Chapter 7 bankruptcy involves strong protections for individuals and families, you must “qualify” to obtain a a Chapter 7 bankruptcy discharge case.
The main issue to be able to obtain a Chapter 7 bankruptcy discharge is based on calculations of your income and expenses. Often called the “means test”, in preparing a bankruptcy petition, you must prove that you “qualify” for relief under the Bankruptcy Code by declaring all income, and sometimes expenses, in your household.
The “means test” is actually not exactly a “test” but contained in the Bankruptcy Code. See 11 U.S.C. 707. Even the main office of the United States Bankruptcy Court explains that the “means test” may be complicated and recommends individuals consult with an attorney.
Beginning after the changes to the Bankruptcy Code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, you are required to submit a Form 122 -Chapter 7 Statement of Your Current Monthly Income.
The means test requires that you declare your current household size and all income received in the household for the preceding six (6) months. If your gross income is less than the median income for your family size, you can file for a Chapter 7 Bankruptcy. If your income is higher than the median income, you would need to complete a more comprehensive schedule of deductions or file for a Chapter 13 bankruptcy case, where you pay a portion of your debts over time with your disposable income.
New Jersey is typically one of the higher “median income” states in the United States – often ranking in the top 5 for median income. For example, the median income to qualify for a Chapter 7 Bankruptcy in New Jersey for a one-person household is typically over $65,000 in gross (pre-tax) income per year. Median income figures adjust regularly and are maintained for family sizes up to four (4) persons with additional amounts added for families of five (5) or more.
A couple simple examples of a New Jersey Chapter 7 Bankruptcy Means test analysis.
Mary is single and does not claim any other dependents on her tax returns. She earns a salary of $55,000 per year – before taxes and other deductions – as a schoolteacher. Mary’s income is below median income for a 1-person household size and qualifies for a Chapter 7 bankruptcy.
Bob and Jane are married with two (2) minor children – ages 4 and 2. Bob works as a police officer earning $70,000 per year in annual salary. Jane, before the children were born, was a full-time nurse but has worked part-time for the last several years while she is home with the children. She earns about $20,000 per year in part-time work. Bob and Jane would qualify for a “Joint” Chapter 7 Bankruptcy case as their income is below median income for a family size of four (4) in New Jersey.
To file for Chapter 7 Bankruptcy, you must also complete a “pre-filing” credit counseling course. To receive a discharge in the Chapter 7 case, you must also complete a “post-filing” course in financial management or debtor education. These courses are typically taken on the internet.
Bankruptcy starts with filing an official petition, schedules and Statement of Financial Affairs in bankruptcy court. You must provide:
A business may also file a Business Chapter 7 Bankruptcy. This should not be confused with an individual who owns or operates a business filing bankruptcy. The application of the Bankruptcy Code to a business is often very different than an individual and should only be considered with the assistance of an experienced bankruptcy attorney. You can Read More Here about a Business Chapter 7 Bankruptcy.
The information provided here, as with all information on our website, is not intended to provide legal advice to anyone considering bankruptcy. If you are experiencing serious debt problems or discussing these problems with a friend or family member, the easiest way to learn how the bankruptcy laws may protect you is to arrange a Free Case Review with an experienced New Jersey Bankruptcy Lawyer. Learn about your rights and options before you make a decision from attorneys who have helped families and businesses for over 30 years. We know that making that first call is often the hardest step but once made, you can often find relief and a fresh start for your financial future.
To learn if you qualify for a Chapter 7 bankruptcy in New Jersey, call out law firm now.
Gillman, Bruton, Capone Law Group
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