Am I Eligible for Chapter 7 Bankruptcy in New Jersey?

New Jersey Median Income

If the bankruptcy court believes that you have enough income to pay at least some of your debts, you may not qualify for Chapter 7 bankruptcy. Using federal bankruptcy Form 22A, you must provide the court with information on your income from all sources for the previous six months. From this figure, Form 22A helps you calculate an annualized current monthly income figure. You must compare this number with the median annual income for a household of your size in New Jersey, using data provided by the U.S. Census Bureau. If your income falls below this amount, you qualify to file Chapter 7.

Another modification of federal bankruptcy law in 2005 was the introduction of the "means test." If you fail the median income test, you must complete the remainder of federal bankruptcy Form 22A. The means test allows you to back out IRS-approved expenses from your income calculation to determine if you have excess funds available to repay creditors.

For Form 22A, the IRS provides national expense standards in categories such as food and clothing and local expense standards for items such as housing and utilities. These allowable expenses vary depending on which county you live in in New Jersey. Once you have deducted all of your expenses, you can file a Chapter 7 bankruptcy if your 60-month disposable income is less than $7,025, but you can not file Chapter 7 if this figure exceeds $11,725. If your 60-month disposable income falls between $7,025 and $11,725, you can still file Chapter 7 if this figure does not exceed 25 percent of your unsecured debt.

Even if you qualify to file for Chapter 7 bankruptcy in New Jersey, it might not necessarily be your best course of action. If you have a substantial amount of valuable assets, the court has the right to liquidate those assets in a Chapter 7 proceeding and distribute the proceeds to your creditors as payment. However, if you file a Chapter 13 bankruptcy, your assets are protected by the courts and can not be seized by creditors. While you will have to make payments to creditors for three or five years under a Chapter 13 bankruptcy, this may be a better option than losing your assets.