To file a Chapter 7 bankruptcy to eliminate medical bills, credit card debt and other unsecured debt, you will need to take a Texas means test. But only people with higher incomes who want to file for Chapter 7 are required to pass the test. If you have an income lower than the Texan median for your household size, you are exempt from the test and may file a Chapter 7.
Texas Ch. 7 Bankruptcy Means Test Requirements
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People with income higher than the Texan median need to complete the means test calculation. This is to help determine if they can pay back a portion of their unsecured debts through a Chapter 13 bankruptcy. However, debtors with mostly business debts are exempt from the bankruptcy means test regardless of their expenses or income.
Disabled veterans that got into debt when they were actively serving or were performing homeland security duties are also exempt from the means test.
Median Income in Texas
You can file a Chapter 7 bankruptcy if your current monthly income (CMI) is less than the Texas Median Income for a household of your size. You automatically pass the means test and will not need to fill out additional forms. Your CMI is the average monthly income you get from all sources during the full six month period before you file for bankruptcy.
To get your average monthly income, just add the total income you got from all sources during the six months and divide that by six. Sometimes your income may have declined over the last six months. In that situation, just wait one or more months to increase the chances for bringing your income under the median level for Texas.
Your annual income is your average income multiplied by 12.
Chapter 7 Bankruptcy Means Test
You are required to complete a means test by calculating your income and expense information. But you must only do this if your income is over the Texas median income for a household your size. Information such as your current monthly income (CMI) is needed to complete the calculations.
Sources of income include rental income, payments from others for your household expenses, business income, interest and dividends, pensions and retirement plans, unemployment income and more. In other words, almost all sources of income you may have are included.
You pass the means test if your total monthly income is less than $7,475 over the course of the next 60 months. If your total monthly income is over 12,475 during that period, you fail the test and cannot file a Chapter 7. For those whose income falls between $7,475 and $12,475, further calculations can be used to determine if they can file a Chapter 7.
If your CMI is more than the Texas median income then a more complicated expense formula is used to determine whether you can file a Chapter 7 or not. The formula deducts allowed expenses from you income such as taxes, housing costs, child care, tithing, utilities and insurance. This is done to determine if after those deductions you still have disposable income available to pay the debt.
If you don’t have any disposable income, you pass the test and can file for a Chapter 7 bankruptcy. But just because you can file a Chapter 7 does not mean you should.
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Chapter 7 Bankruptcy Questions
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is a type of bankruptcy that allows individuals to discharge their debts. In a Chapter 7 bankruptcy, all of the debtor's assets are liquidated and the proceeds from the liquidation are used to pay off creditors.
How does one qualify for Chapter 7 bankruptcy?
To qualify for Chapter 7 bankruptcy, an individual must pass the means test. The means test is a test that determines whether an individual has the ability to repay their debts. If an individual does not have the ability to repay their debts, they may be eligible for Chapter 7 bankruptcy.
What are the benefits of filing for Chapter 7 bankruptcy?
The benefits of filing for Chapter 7 bankruptcy include the discharge of debts, the protection of assets, and the prevention of foreclosure.
What are the drawbacks of filing for Chapter 7 bankruptcy?
The drawbacks of filing for Chapter 7 bankruptcy include the negative impact on credit, the loss of assets, and the possibility of having to reaffirm certain debts.
What types of debts can be discharged in a Chapter 7 bankruptcy?
Most types of debts can be discharged in a Chapter 7 bankruptcy, including credit card debt, medical debt, and personal loans. However, certain types of debt cannot be discharged, such as student loans and child support payments.
How long does a Chapter 7 bankruptcy stay on one's credit report?
A Chapter 7 bankruptcy will stay on an individual's credit report for up to 10 years.
Will I be able to get credit after filing for Chapter 7 bankruptcy?
It is possible to get credit after filing for Chapter 7 bankruptcy; however, it will likely have a higher interest rate than before.
How does chapter 7 compare to chapter 13 bankruptcy?
The two most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 bankruptcy allows the debtor to discharge most of their debts, while Chapter 13 requires the debtor to repay their debts over a period of time.
What are the eligibility requirements for filing for bankruptcy?
To be eligible for Chapter 7 bankruptcy, the debtor must pass what is known as the means test. This test looks at the debtor's income and expenses to determine if they qualify for Chapter 7. To be eligible for Chapter 13 bankruptcy, the debtor must have a regular source of income and their unsecured debts must be less than $394,725.
What are some of the disadvantages of filing for bankruptcy?
Filing for bankruptcy can have a number of negative consequences, including damaging your credit score, losing certain assets, and having difficulty obtaining new lines of credit. Additionally, the bankruptcy process can be very complex and time-consuming.
What are some alternatives to filing for bankruptcy?
There are a number of alternatives to filing for bankruptcy, including debt settlement and debt consolidation. Debt settlement involves negotiating with your creditors to agree to accept less than what you owe them. Debt consolidation involves taking out a new loan to pay off your existing debts.