When you’re considering Chapter 7 bankruptcy, one of the first questions is whether you meet New Jersey’s income requirements. Eligibility is often determined by the means test, which uses a six-month income lookback and compares it to New Jersey’s median income guidelines for the applicable filing period. If your average income over the six months before filing falls below these thresholds, you generally qualify without additional analysis. If your income exceeds the median, you may still qualify by passing the means test, which evaluates your disposable income after allowable living expenses.
At Straffi & Straffi Attorneys at Law, New Jersey bankruptcy attorney Daniel Straffi, Jr. helps individuals and families throughout Ocean County determine if they meet the income criteria for Chapter 7. Our Chapter 7 bankruptcy lawyers can assess your financial situation, complete the required forms accurately, and represent you before the U.S. Bankruptcy Court for the District of New Jersey.
This guide explains how income limits work under the 2026 guidelines, what counts as income in the means test calculation, and what options you have if your income exceeds the threshold. You will also learn about the factors beyond income that affect Chapter 7 eligibility and the steps to take after determining you qualify. Call Straffi & Straffi Attorneys at Law at (732) 341-3800 to speak with Daniel Straffi, Jr. about your case.
How Does the Means Test Determine Chapter 7 Eligibility in 2025?
The means test is a two-step calculation that determines whether you have sufficient income to repay your debts. Congress introduced this test to prevent abuse of the bankruptcy system by ensuring that only those who truly cannot afford to pay their debts receive Chapter 7 relief.
The first step compares your current monthly income to the median income for your household size in New Jersey. Current monthly income is calculated by averaging your income from all sources over the six calendar months before you file. If your income falls at or below the median, you pass the means test automatically and typically qualify for Chapter 7 without further analysis.
If your income exceeds the state median, the means test proceeds to step two. This step calculates your monthly disposable income by subtracting allowable living expenses from your total income. Allowable expenses are based on national and local IRS standards and cover necessities such as food, clothing, housing, transportation, and healthcare. The calculation also accounts for actual expenses like mortgage payments, car loans, taxes, and mandatory payroll deductions.
After subtracting all allowable expenses, the remaining amount is your disposable income. If this figure is low enough, meaning you have little or no money left over each month, you may still qualify for Chapter 7 even with income above the median. If your disposable income is too high, Chapter 13 bankruptcy may be a better fit, as it allows you to repay debts through a structured three-to-five-year payment plan.
What Income Sources Are Included in the Means Test Calculation?
Under the Bankruptcy Code, current monthly income includes the average monthly income from all sources received during the six months before filing. This definition is broad and captures most financial resources, regardless of whether the income is taxable.
Income sources that count toward the means test include:
- Employment Earnings: Wages, salaries, tips, bonuses, overtime pay, and commissions
- Business Income: Net income from self-employment or business operations after deducting ordinary and necessary business expenses
- Investment Income: Dividends, interest, and capital gains from stocks, bonds, and other investments
- Rental Income: Gross rental income from property you own, minus allowable expenses
- Pension and Retirement Income: Payments from pensions, 401(k) distributions, IRA withdrawals, and annuities
- Alimony and Child Support: Payments received for spousal support or child support under a court order or agreement
- Unemployment Compensation: Benefits received from state unemployment insurance programs
- Other Financial Contributions: Regular contributions to household expenses from non-debtors, such as a domestic partner or adult child living with you
Certain income sources are excluded from the calculation. Social Security retirement benefits, Supplemental Security Income (SSI), and Social Security Disability Insurance (SSDI) are not counted as current monthly income. The HAVEN Act excludes specific military and veterans’ payments, including Department of Veterans Affairs (VA) disability benefits, Department of Defense (DoD) combat-related special compensation, disability severance pay, and certain catastrophic injury payments. Payments to victims of war crimes, terrorism, and certain crime victims’ compensation are also excluded.
While excluded income does not factor into the means test, the U.S. Trustee can still review your overall financial situation. Under 11 U.S.C. § 707(b)(3), the U.S. Trustee may challenge your case for abuse based on bad faith or the totality of circumstances, even if you pass the means test.
What Are the 2025 Income Limits for Chapter 7 Bankruptcy in New Jersey?
New Jersey’s median income figures are published by the U.S. Trustee Program and change periodically. Use the table that matches your filing date:
Cases filed May 15 to Oct 31, 2025 (New Jersey):
| Household Size | Annual Median Income |
|---|---|
| 1 person | $84,257 |
| 2 people | $102,903 |
| 3 people | $131,173 |
| 4 people | $163,110 |
Cases filed on or after Nov 1, 2025 (New Jersey):
| Household Size | Annual Median Income |
|---|---|
| 1 person | $84,938 |
| 2 people | $104,136 |
| 3 people | $133,620 |
| 4 people | $163,817 |
For households larger than four people, add $11,100 for each additional person. For example, a five-person household has a median income of $174,210, and a six-person household has a median income of $185,310.
Household size is determined by the number of people you financially support, including yourself, your spouse (if filing jointly), and any dependents. Dependents can include minor children, adult children you support, elderly parents you care for, or other relatives living with you whom you support. The exact composition of your household can affect which median income figure applies to you.
Chapter 7 Bankruptcy Attorney in New Jersey – Straffi & Straffi Attorneys at Law
Daniel Straffi, Jr., Esq.
Daniel Straffi, Jr. is a New Jersey bankruptcy attorney admitted to practice in New Jersey, Pennsylvania, and the U.S. District Court for the District of New Jersey since 2001. A graduate of Boston College in 1998 and Rutgers-Camden School of Law in 2001, he began his legal career serving as a judicial law clerk for the Presiding Judge of Family Law in Mercer County, the Honorable Lee Forrester, P.J.F.P. After his clerkship, he practiced negligence defense at Cooper Levenson before joining his father’s law practice in 2004.
His practice focuses on representing individuals and businesses in bankruptcy, divorce, and criminal defense matters. He is an active member of the New Jersey and Ocean County Bar Associations, where he serves as Co-Chair of the Bankruptcy Panel. He is also a certified mediator and Early Settlement Panelist in Ocean County. Clients value his clear explanations of the bankruptcy process and strategic approach to qualifying for and completing Chapter 7 cases.
How Can You Qualify for Chapter 7 If Your Income Exceeds the Median?
Earning above the median income does not automatically disqualify you from Chapter 7. The second step of the means test evaluates your monthly disposable income after subtracting allowable expenses.
Allowable Living Expenses
The IRS publishes national and local standards for living expenses, which the bankruptcy courts use to determine what expenses are allowable. National standards cover food, clothing, household supplies, personal care, and miscellaneous items. Local standards vary by county and cover housing, utilities, and transportation costs.
In addition to these standardized amounts, you can deduct actual expenses for mortgage or rent payments, car loan payments, health insurance premiums, mandatory payroll deductions (such as taxes and retirement contributions), court-ordered payments (such as child support), and payments on secured debts. You may also deduct certain involuntary deductions and necessary expenses, such as childcare costs, if you can document them.
Strategic Planning to Pass the Means Test
Timing your bankruptcy filing to coincide with changes in income or expenses can improve your means test outcome. For example, if you recently lost your job, changed jobs to a lower salary, or experienced a reduction in hours, your six-month income average will decline over time. Waiting a month or two may allow lower-earning months to replace higher-earning months in the calculation.
Similarly, if you anticipate an increase in allowable expenses, such as a new mortgage payment, a car loan, or higher childcare costs, filing after these expenses begin can reduce your disposable income.
It is important to avoid actions that appear fraudulent or abusive. Do not incur new debts or make large unnecessary purchases immediately before filing. Such actions can result in the denial of discharge or dismissal of your case. Legal planning involves making legitimate financial decisions within the boundaries of bankruptcy law.
Key Takeaway: Even if your income exceeds the New Jersey median, you can still qualify for Chapter 7 if your disposable income after allowable expenses is low enough. Strategic timing, accurate expense documentation, and proper completion of the means test forms can improve your outcome.
Daniel Straffi, Jr. can analyze your income and expenses, identify allowable deductions, and determine the best time to file. Contact Straffi & Straffi Attorneys at Law at (732) 341-3800.
What Are Common Mistakes to Avoid in the Means Test?
Errors on the means test forms can delay your case, result in dismissal, or lead to challenges from the U.S. Trustee. Avoiding these common mistakes improves your chances of a smooth bankruptcy process.
Inaccurate Income Reporting
Failing to report all income sources is one of the most common mistakes. You must include wages, bonuses, overtime, rental income, self-employment income, unemployment benefits, alimony, and child support. Even income from side jobs, cash payments, or irregular sources must be reported if received during the six-month lookback period.
Underreporting income, whether intentional or accidental, can result in serious consequences. The U.S. Trustee reviews tax returns, pay stubs, and bank statements to verify the accuracy of your reported income. Discrepancies can lead to dismissal of your case or denial of discharge.
Incorrect Household Size Determination
Household size directly affects which median income figure applies to your case. Accurately accounting for each person you financially support is critical. This includes your spouse (if filing jointly), minor children, and any dependents you support, such as elderly parents or adult children still living at home.
Claiming individuals you do not actually support can be considered fraud. Conversely, failing to include legitimate dependents can result in an unnecessarily low median income threshold, making it harder to pass the means test.
Overlooking Allowable Expenses
Many filers fail to claim all the expenses they are entitled to deduct. In addition to the IRS standard amounts, you can deduct actual expenses for housing, transportation, healthcare, mandatory payroll deductions, and payments on secured debts. Childcare costs, certain disability-related expenses, and court-ordered payments are also deductible if properly documented.
Failing to claim these expenses can result in an inflated disposable income figure, which may push you out of Chapter 7 eligibility even though you legitimately qualify. Reviewing all possible deductions with an experienced attorney ensures you receive credit for every allowable expense.
Key Takeaway: Accurate income reporting, correct household size determination, and claiming all allowable expenses are critical to passing the means test. Errors can result in denial of Chapter 7 relief or challenges from the U.S. Trustee.
Straffi & Straffi Attorneys at Law can review your financial records, complete the means test forms accurately, and ensure all required documentation is submitted to the bankruptcy court. Call (732) 341-3800 for assistance.
Seek Guidance from a New Jersey Chapter 7 Bankruptcy Attorney
Filing for Chapter 7 bankruptcy is a significant decision that affects your financial future. Knowing the income limits, accurately completing the means test, and protecting your assets requires detailed knowledge of federal bankruptcy law and New Jersey exemptions.
Daniel Straffi, Jr. has represented individuals and businesses in bankruptcy cases throughout Ocean County and New Jersey for more than two decades. At Straffi & Straffi Attorneys at Law, our bankruptcy attorneys handle every step of the Chapter 7 process, from initial consultation and document preparation to representation at the 341 meeting and resolution of trustee objections. Our office works with clients who file at the U.S. Bankruptcy Court in Trenton and assists with cases throughout the state.
Call Straffi & Straffi Attorneys at Law at (732) 341-3800 for a free consultation. Our office in Toms River serves families and businesses across Ocean County and throughout New Jersey. We can review your income, expenses, and assets, determine if you qualify under the guidelines, and provide the legal support you need to achieve a fresh financial start.
