For individuals and families across New Jersey facing mounting financial pressure, Chapter 7 bankruptcy can provide meaningful relief through the discharge of unsecured debts such as credit cards, medical bills, and personal loans. However, eligibility for Chapter 7 is not automatic. Congress implemented strict income-based safeguards under 11 U.S.C. § 707(b), commonly known as the Chapter 7 Means Test, to prevent abuse of the bankruptcy system.
The Means Test was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Its purpose is straightforward: individuals who have the financial capacity to repay a meaningful portion of their debts should not bypass repayment through liquidation. Courts across the country have consistently enforced this framework, including decisions such as In re Axline, 618 B.R. 454 (2020), In re Addison, 580 B.R. 24 (2018), and Egebjerg v. Anderson (In re Egebjerg), 574 F.3d 1045 (9th Cir. 2009), which analyze how and when a presumption of abuse arises.
At Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, we routinely conduct detailed Means Test analyses for clients throughout Newark, Trenton, Camden, and surrounding New Jersey counties. The difference between qualifying for Chapter 7 and being forced into Chapter 13 often turns on careful statutory application.
The Means Test begins with the calculation of “Current Monthly Income” (CMI), defined under 11 U.S.C. § 101(10A). CMI is the average of all income received during the six full calendar months prior to filing bankruptcy. Courts have repeatedly emphasized that this calculation focuses on income received during the six-month look-back period, regardless of when it was earned. See In re Reinhart, 559 B.R. 217 (Bankr. E.D. Wis. 2016); In re Blake, 565 B.R. 871 (Bankr. N.D. Ill. 2017).
The United States Supreme Court confirmed this averaging framework in Hamilton v. Lanning, 560 U.S. 505 (2010), recognizing that bankruptcy courts may consider forward-looking adjustments where appropriate, but the statutory starting point remains the six-month average.
CMI expressly excludes certain protected benefits, including Social Security income under the Social Security Act, as confirmed in Blausey v. U.S. Trustee, 552 F.3d 1124 (9th Cir. 2009), and codified within § 101(10A).
Once CMI is calculated, it is annualized and compared to the median household income for a family of the same size in New Jersey, as published by the U.S. Trustee Program and adjusted periodically under 11 U.S.C. § 104.
If your income falls below the New Jersey median, the presumption of abuse does not arise under § 707(b)(2), and you generally qualify for Chapter 7.
If your income exceeds the median, the analysis continues.
When a debtor’s income exceeds the median, § 707(b)(2)(A)(i) requires further calculations to determine whether sufficient disposable income exists to repay creditors. Allowable deductions include IRS National and Local Standards, secured debt payments, certain taxes, court-ordered support obligations, and limited charitable contributions.
If, after applying statutory deductions, the projected 60-month disposable income exceeds the thresholds set forth in § 707(b)(2)(A)(i), a presumption of abuse arises. The case may then be dismissed or converted to Chapter 13, with the debtor’s consent.
However, the presumption may be rebutted under § 707(b)(2)(B) if the debtor demonstrates “special circumstances,” such as serious medical conditions or active military duty. These circumstances must be documented and verified under oath.
Even if the presumption does not arise, courts retain authority under § 707(b)(3) to dismiss a case for bad faith or under the “totality of the circumstances.” As courts have emphasized, Chapter 7 relief requires transparency and good faith.
We recently represented a Middlesex County client whose income exceeded the New Jersey median due to a temporary period of overtime and a one-time performance bonus. On initial review, it appeared she might not qualify for Chapter 7.
However, after applying the proper IRS expense standards, accounting for significant secured mortgage obligations, and documenting childcare costs, her disposable income fell below the statutory threshold. She qualified for Chapter 7 and received a discharge.
This illustrates why careful statutory interpretation matters. Surface-level income comparisons can be misleading.
Many Chapter 7 cases encounter difficulty due to preventable mistakes:
Inaccurate reporting can lead to trustee objections, additional scrutiny, or even dismissal.
Chapter 7 is often described as “liquidation,” but that term can cause unnecessary fear. In New Jersey, debtors may elect either federal exemptions under 11 U.S.C. § 522(d) or applicable state exemptions.
With proper planning, many clients retain:
Asset analysis is just as important as income analysis.
For those who wish to review statutory authority directly, the following non-competitor resources provide reliable information:
These sources provide primary authority but do not replace individualized legal advice.
Determining whether you fall within Chapter 7 income limits requires more than reviewing your salary. It requires statutory interpretation under 11 U.S.C. §§ 707 and 101(10A), proper application of allowable deductions, and strategic timing.
A thorough evaluation at the outset can:
At Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, we provide confidential consultations for individuals throughout New Jersey. Our analysis is detailed, legally grounded, and tailored to your specific circumstances.
If you are considering bankruptcy or are unsure whether you qualify under the Chapter 7 Means Test, contact our office to schedule a consultation and receive clear, legally sound guidance.