To file a Chapter 7 bankruptcy in Texas you must pass the Texas means test. The test only applies to filers that make more than “X” of dollars per year which means that if the qualifying income is below the Texas median for a household size then a consumer is exempt from the test and may file a Chapter 7. In short, if a consumer makes too much money they may not be eligible for a Chapter 7 bankruptcy.
When a consumer’s income is higher than the Texas median they need to complete the means test calculation to determine if they can pay back a portion of their unsecured debts through a Chapter 13 bankruptcy.
Means Test Exemptions
If the debts are not primarily consumer debts then a debtor is exempt from the means test. A debtor may also be exempt from the means test if they are a disabled veteran and incurred their debt primarily during active duty or performing a homeland defense activity.
Texas Median Income
If a debtor’s current monthly household income is less than the Texas median income for a household of their size there is a presumption that they may pass the means test and are eligible to file a Chapter 7 bankruptcy.
A debtors average household income is determined by averaging their monthly income over the last six calendar months. If they are over the median income limit and their income has declined over the last six months, then waiting one or more months might bring their income under the median level for Texas. Once a debtor determines their average monthly income they can multiply that by 12 to determine your annual income for the purpose of Texas median income test.
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If a debtor’s income is over the Texas median income for a household their size then they must complete the means test by calculating their income and expense information
They must collect some of the information needed to complete the calculation such as current monthly income from all sources.
Income includes almost all of the ways money is brought into the household and may include, but is not limited to, business income, rental income, interested and dividends, pensions and retirements plans, amounts paid by others for household expenses, and unemployment income.
Much of the information related to expenses is based on national, Texas, and local averages and standards and comes from the data collected by US Census Bureau and the Internal Revenue Service. There are some actual expenses you are allowed to include such as obligations you are legally required to pay and expenses necessary for health and welfare.
After all the required information has been collected, the allowed expenses for Texas consumers are subtracted from total income to determine the amount of income under the bankruptcy law that is available to pay unsecured creditors.
If total monthly income over the course of the next 60 months is less than $7,475/month then the means test is passed and a Chapter 7 bankruptcy can be filed. If it is over $12,475/monthly then the means test is failed and don’t have the option of filing Chapter 7. If the disposable income under the means test is between $7,475 and $12,475 then further calculations are needed to determine if filing a Chapter 7 bankruptcy is a possibility.
Just because a Chapter 7 can be filed does not mean that it should. Generally, a Chapter 7 bankruptcy is a better option if a debtor is not attempting to keep secured property like a home with a mortgage. The attorneys at the J. Gannon Helstowski Law Firm can help determine options and the best course to take.