Qualifying for Chapter 7 bankruptcy

On Behalf of | Jul 7, 2023 | Bankruptcy

There are two options for New Jersey residents interested in filing for bankruptcy: Chapter 7 and Chapter 13. Before filing for bankruptcy, you will need to make sure you meet the eligibility requirements.

Any individual with debts (both secured and unsecured) less than $2,750,000 on the date of filing qualifies for Chapter 13 bankruptcy. However, there are several criteria to qualify for Chapter 7 bankruptcy.

Eligibility requirements for Chapter 7 bankruptcy

Generally, people with lower income levels are more likely to qualify for Chapter 7 bankruptcy. As an individual, you will be eligible for Chapter 7 bankruptcy if you meet the criteria. The main requirements include the following:

  • You must not have filed for Chapter 7 bankruptcy within the past eight years or Chapter 13 bankruptcy within the past six years;
  • You must have completed an approved debt counseling course no more than 180 days before filing; and
  • You must pass the means test.

Passing the means test is often the most difficult part of qualifying for Chapter 7 bankruptcy.

What is a means test?

If your annual income is lower than the median income for a household of the same size in New Jersey, you have passed the means test for Chapter 7 bankruptcy.

If your annual income is higher than the median, you will have to move to the second part of the means test which looks at your disposable income. You will deduct certain household expenses from your income to determine your disposable income. If your monthly disposable income is low enough, you have passed the means test for Chapter 7 bankruptcy. If you do not pass the means test, you will not qualify for Chapter 7 bankruptcy unless you qualify under an exception.

Chapter 7 bankruptcy discharges consumer debts and other secured debts and can be a great option for many eligible New Jersey residents. However, it is not the only option. You may be able to file for Chapter 13 bankruptcy or consider alternative options.