How Much Income Will Permit a Person to File for Chapter 7 Bankruptcy?
The chapter 7 criteria does not only analyze income, but income, expenses, and monthly disposable household income.
There are two criteria regarding income that must be met to file a chapter 7.
The first criteria, called the Means Test or Current Monthly Income Test, focuses on the debtor’s household income as compared to the average income of a household of that size in New Jersey. If the household’s gross income is less than the New Jersey’s average household income, the debtor meets the criteria. The criteria is based on the household’s gross income for the six months prior to the bankruptcy filing. The average income of a household is based upon the U.S. Dept. of Justice’s figures, which are periodically modified. The present figures in New Jersey are as follows:
Average gross income of a household of 1 is $62,226.00
Average gross income of a household of 2 is $69,634.00
Average gross income of a household of 3 is $87,576.00
Average gross income of a household of 4 is $105,175.00
If the debtor’s income is more than the average, the debtors may still meet the criteria if their average household’s net income, for the six months prior to the filing, is less than their expenses for this same period. A portion of the expenses are dictated by the IRS standards and a portion is based upon actual expenses.
There is a second criteria related to income. This criteria is met if the projected future household average monthly net income is less than the household’s actual monthly expenses that are reasonable and necessary to maintain the household. In other words, the debtors must be insolvent, and unable to pay their reasonable and necessary expenses to maintain the household. The debtors must be in the red every month. The expenses cannot include the debtors’ monthly payments on unsecured debt such as credit card debt.
If either of the two aforementioned analyses reflects excess income, the debtors may not file for chapter 7 bankruptcy but may file a chapter 13 bankruptcy and pay the amount of the monthly disposable income toward the debt.
Chapter 7 debtors with higher incomes may still meet the criteria if they have larger households and/or substantial monthly expenses that are necessary to maintain the household. In certain scenarios, a high monthly mortgage and/or auto payment may allow debtors with larger incomes, meet the criteria.
NJ Chapter 7 Bankruptcy Lawyer Robert Manchel will discuss your bankruptcy questions at (866) 503-5655. Call to discuss your potential for bankruptcy protection and how the laws apply to your individual case.