TOMS RIVER, NJ - Individuals considering Chapter 7 bankruptcy in New Jersey must meet specific income requirements determined by the federal means test, which compares a six-month income average against state median income guidelines. New Jersey bankruptcy attorney Daniel Straffi, Jr. of Straffi & Straffi Attorneys at Law (https://www.straffilaw.com/what-are-income-limits-chapter-7-bankruptcy/) explains how the income thresholds work, what counts as income in the calculation, and what options exist for those whose income exceeds the median.
According to New Jersey bankruptcy attorney Daniel Straffi, Jr., the means test is a two-step calculation Congress introduced to ensure that only individuals who truly cannot afford to repay their debts receive Chapter 7 relief. The first step compares current monthly income, averaged over six calendar months before filing, to the median income for the applicable household size in New Jersey. If income falls at or below the median, the filer generally qualifies without further analysis. "Many individuals are surprised to learn that New Jersey's median income thresholds are among the higher figures nationally," explains Straffi.
New Jersey bankruptcy attorney Daniel Straffi, Jr. notes that for cases filed on or after November 1, 2025, the annual median income thresholds in New Jersey are $84,938 for a single-person household, $104,136 for two people, $133,620 for three people, and $163,817 for four people, with an additional $11,100 added for each person beyond four. The definition of current monthly income under the Bankruptcy Code is broad, encompassing wages, business income, investment returns, rental income, pension payments, alimony, child support, unemployment compensation, and regular financial contributions from non-debtors in the household.
Certain income sources are excluded from the means test calculation. Social Security retirement benefits, Supplemental Security Income, Social Security Disability Insurance, and specific military and veterans' payments under the HAVEN Act are not counted as current monthly income. However, under 11 U.S.C. § 707(b)(3), the U.S. Trustee may still challenge a case for abuse based on the totality of circumstances even when the filer passes the means test. "Accurate reporting of all income sources is critical," Straffi adds. "The U.S. Trustee reviews tax returns, pay stubs, and bank statements to verify reported figures, and discrepancies can lead to dismissal or denial of discharge."
When income exceeds the state median, the second step of the means test calculates monthly disposable income by subtracting allowable living expenses based on national and local IRS standards. These standards cover necessities including food, clothing, housing, utilities, transportation, and healthcare, along with actual expenses for mortgage payments, car loans, health insurance premiums, mandatory payroll deductions, and court-ordered payments such as child support. Childcare costs and certain disability-related expenses may also be deductible when properly documented. If disposable income after all deductions is low enough, Chapter 7 eligibility may still be established even with income above the median threshold.
Attorney Straffi points out that the strategic timing of a bankruptcy filing can affect means test outcomes. If a filer recently lost employment, changed to a lower-paying position, or experienced a reduction in hours, waiting a month or two may allow lower-earning months to replace higher-earning months in the six-month calculation. Similarly, filing after new allowable expenses begin, such as a mortgage payment or increased childcare costs, can reduce the disposable income figure. However, actions that appear fraudulent or abusive, such as incurring new debts or making large unnecessary purchases immediately before filing, can result in denial of discharge or dismissal of the case.
Common errors on means test forms can delay cases or result in challenges from the U.S. Trustee. Incorrect household size determination directly affects which median income threshold applies, and overlooking allowable expenses can inflate the disposable income figure. Many filers fail to claim all the deductions they are entitled to, which can push them out of Chapter 7 eligibility even when they legitimately qualify. The firm represents clients who file at the U.S. Bankruptcy Court in Trenton and assists with cases throughout New Jersey and Ocean County.
"Filing for Chapter 7 bankruptcy is a significant decision that affects long-term financial standing," advises Straffi. "Proper completion of the means test forms and thorough documentation of all allowable deductions can make the difference between qualifying and being directed to Chapter 13." For those whose income exceeds the median but whose disposable income remains low after legitimate expenses, Chapter 7 relief may still be available through careful preparation.
For individuals and families in Ocean County and throughout New Jersey facing overwhelming debt, understanding the income limits and means test requirements is an essential first step toward determining eligibility for Chapter 7 bankruptcy. Consulting with a bankruptcy attorney can help ensure accurate filings and identify all available options for debt relief.
About Straffi & Straffi Attorneys at Law:
Straffi & Straffi Attorneys at Law is a Toms River, New Jersey-based law firm focused on bankruptcy, divorce, and criminal defense representation. Led by attorney Daniel Straffi, Jr., the firm represents individuals and businesses throughout Ocean County and New Jersey. Daniel Straffi, Jr. has practiced law since 2001 and serves as Co-Chair of the Bankruptcy Panel for the Ocean County Bar Association. For consultations, call (732) 341-3800.
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