This myth has been around ever since the bankruptcy laws were changed in 2005; people have had the impression that it is tougher to file a chapter 7 bankruptcy, or worse, that they can't any more.
Well, I can tell you that from handling bankruptcies for clients here in southern New Jersey for the 7 years since this change was made, that that is just bunk!
Income Means Testing As a Possible Barrier
The 2005 changes to the bankruptcy laws created something called "means testing" in which the gross income of the person filing is analyzed for the six month period leading up to the month in which he filed. It is then doubled to create an annual figure and then compared to the median income in New Jersey for that person's household size (e.g. a family of three).
If your income is below this median, then you do not make too much money to file a chapter 7 bankruptcy. Even if your income is over the median, if means testing shows that you have little or no money left over after the deduction of expenses, then you can still file a chapter 7.
Why Means Testing Is Seldom an ACTUAL Barrier
I can tell you that in the vast majority of cases I have handled for clients, they do not have gross income over the median, or if they do, their expenses eliminate any income that could be used to pay creditors.
Even then, those who fail the test initially just have to wait for a more opportune time to file when the six months of income is lower. This could be because of additional income during that period due to:
- A quarterly or annual bonus
- Income from a previous job at a higher salary
- Overtime pay that is now no longer being received
People planning to file for a chapter 13 repayment plan aren't affected by means testing in the same way, as the test is used there to determine whether there is a minimum amount that must be paid to creditors.
You should never think that you make too much money to file bankruptcy. In most cases, it simply isn't true, and a chapter 7 fresh start is still available to you.
So What Do I Do?
If you live in South Jersey and are considering filing bankruptcy, call my office at 856-432-4113 or contact me through this site for a free consultation to discuss your case.
If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.