- An increasing trend among debtors to seek total discharge of debt by exploiting Chapter 7 bankruptcy when their income could have accommodated a Chapter 13 repayment plan compelled Congress to pass the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The Act limits the ability of debtors to use Chapter 7 to avoid obligations and allows states to develop their own means test for Chapter 7 bankruptcy. In New Jersey, the means test is simply a comparison between the debtor's income against the state's median income in the state. If you earn significantly more than the median income for a family of your size, you can, indeed, be prohibited from filing under Chapter 7.
New Jersey Median Income Levels
- New Jersey median incomes are as follows: The median income for a family of one is $59,812. For a two-person household the median income is $71,744. For a three-person household the median income is $85,764. For a four-person household the median income is $102,894. For families of more than four people, add $7,500 for each individual. If your monthly income for the prior six months equals less than the median income levels above, you can file for Chapter 7. The State of New Jersey revisits these numbers periodically and adjusts them to reflect changes in the median income.
- You may be denied Chapter 7 eligibility if the court finds that, after expenses, you do have enough disposable income to pay back some or all of the debt. You can also be turned down if you had a bankruptcy disallowed in the past 180 days because you failed to comply with a court order or because of fraud on your part. You may also be turned down if you attempted to transfer assets to friends to hide them from creditors; if you ran up debts for luxury items knowing you were likely to go bankrupt; if you lied about your income or assets to a creditor to obtain credit; or if you concealed assets from a spouse during a divorce.
- If you are turned down for Chapter 7, your only alternative for bankruptcy is to file under Chapter 13. This will involve a restructuring of debt, and you will have to make payments to pay your debt down. Otherwise, you will just have to do your best to deal with your creditors outside the bankruptcy system. Outside bankruptcy, however, your creditors may take further collection actions, such as wage garnishment, foreclosure or attachment of bank accounts and other financial assets.