Do I Make Too Much Money to File for Bankruptcy?


Filing for bankruptcy is typically thought of as something you do when you’re completely broke. You’ve got no job or are severely underpaid, and you can barely keep the electric bill paid. You scrape by, paycheck to paycheck, wondering if this will be the month that your mortgage company starts foreclosure proceedings. Your fridge is empty, your kids are hungry, and your bank account has 36 cents in it.

While the above certainly is a common bankruptcy scenario, what about those people who make substantial salaries (above the state median) who find themselves in financial trouble?

As part of the NJ Means Test, your income certainly will be reviewed. It will be compared to the mean income of the rest of the people living and working in New Jersey. However, if you happen to make more (even substantially more) money than the state median income, you won’t automatically be prevented from filing for Chapter 7 bankruptcy.

In order to qualify for Chapter 7 bankruptcy in New Jersey, you do have to be able to pass the Means Test (usually) but it goes beyond simply looking at how much money you make. In short, the Means Test determines if your all of your debts, dependents, child support, unpaid back taxes and other expenses are more than your income can reasonably support at this time.

If, during the first phase of the Means Test, you’re found to have an income above the state median, you’ll move on to part two of the test. During this phase, all of your reasonable living expenses aside, your financial obligations will be added up and compared to your take home pay. If you would not be able to pay back your debtors through a Chapter 13 debt reorganization plan, you will likely qualify for a Chapter 7 bankruptcy.

It’s also important to note that some types of income are not included in your overall earnings for the NJ Means Test. For example, Social Security payments are exempt. Subtracting them from your total income may bring you under the state median.

You may be able to avoid the Means Test if you’re a United States disabled veteran, and can show that most or all of your debts occurred while you were in ‘active duty’ status. Additionally, if you’re currently an active reservist or member of the National Guard, you will not be subjected to the Means Test during your active duty and for 540 days after your active duty ends.

Many people get into financial trouble while trying to start or maintain their own business. If you fall into this category, you may not have to pass the Means Test, however, at least half of your debts must be related to your business. It’s important that you have official paperwork and separate bank accounts to be able to prove where your debts originated from.

If you have questions regarding a high income bankruptcy matter that have not been answered, please click here to message our office directly. You can also give us a call at (732) 852-7295. Visit our website and blog to read more informative articles while you wait for your free consultation appointment.

Image credit: Frankie Leon

4 Responses to Do I Make Too Much Money to File for Bankruptcy?

  1. Pingback: Bad Checks and NJ Bankruptcy Law | Veitengruber Law

  2. Pingback: Special Financial Rules and Benefits for U.S. Veterans | Veitengruber Law

  3. Pingback: New Jersey Bankruptcy: Frequently Asked Questions | Veitengruber Law

  4. Pingback: 5 Common Bankruptcy Myths: Debunked | Veitengruber Law

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