Chapter 7 bankruptcy is an attractive option for many people, but not everyone will be considered eligible. If you wish to file for bankruptcy under Chapter 7 laws, it is important that you understand the importance of the means test and how to pass it. Read on and work with a Bergen County Chapter 7 bankruptcy lawyer for more information today.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a legal process that allows a debtor to eliminate unsecured debts and have a fresh start. Certain non-exempt assets will be liquidated to pay back creditors, but the process protects the individual’s right to retain certain assets while avoiding paying back unsecured debts like medical bills or credit card balances.
What is the Means Test?
The means test is a formula used to determine whether an individual is eligible to file for Chapter 7 bankruptcy. It evaluates whether the individual has the means or ability to pay creditors. In order to be considered eligible for Chapter 7 bankruptcy, the debtor must have an income low enough to be insufficient to pay back their debts.
The means test ensures that individuals with sufficient income do not abuse the system to avoid paying off their debts when they are actually able to do so. This test was enacted by the 2005 BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) and prevents people with higher incomes from discharging debts that they can afford to repay under Chapter 13 or a different type of bankruptcy.
The means test compares your average monthly income over the past several months to the median income for a household of your size in your state. It will also take into account your expenses and the debts that you owe.
How Do I Pass the Means Test for Chapter 7 Bankruptcy?
To pass the means test, you need to first fill out a variety of forms and documents to provide information about your financial situation. You must list all sources of income from the past six months to determine your gross household income. Your income will then be compared to your state’s median income.
For example, the Department of Justice Census Bureau reported the median family income for a household of 3 as $131,173 in 2025 in New Jersey. If your gross income is less than the median, you have passed the means test and can be considered eligible for Chapter 7 bankruptcy.
However, if your income exceeds the median, there is a second part of the test. You can deduct certain expenses from your gross income to determine whether your disposable income is sufficient to allow you to make payments to creditors. If it is, then you do not qualify for Chapter 7 bankruptcy and will likely have to file under Chapter 13. If not, you can be considered eligible for Chapter 7.
For more information and to secure skilled representation, set up your free consultation with an experienced attorney at the Law Office of Boyd & Squitieri today.