If you are burdened with credit card debt, medical bills, payday loans, dischargeable income taxes or other unsecured debt, then you may benefit from filing Chapter 7 bankruptcy. Many people choose to file a Chapter 7 Bankruptcy to stop a lawsuit or stop creditor harassment. A Chapter 7 bankruptcy also gives you the opportunity for a fresh start.
Chapter 7 Eligibility
However, you have to meet certain criteria to be eligible to file for bankruptcy. Despite a few changes to the bankruptcy law, most people in Texas who apply for bankruptcy are still eligible.
See also > Houston Chapter 7 Bankruptcy Lawyer
Chapter 7 Means Test
Your ability to file for a Chapter 7 or a Chapter 13 is dependent on your income, your necessary living expenses, and your debts. But one difference between the two is that to file either a “personal” or “consumer” Chapter 7 bankruptcy you will need to take the bankruptcy means test. The bankruptcy means test helps determine your eligibility to file a Chapter 7.
The test was created to stop people from “abusing” the system. In the test, your income in the last 6 months before you filed is looked at to see whether you pass the means test. The test determines your average income and multiplies that by twelve.
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The means test is based on the median household income in your specific area. Your income in the last 6 months before you filed is then compared to the median income of the county that you reside for your household size. If it is below the median income, you do not have to continue any further with the test because a lower income makes you eligible.
If it is higher than the median income, your creditors or the bankruptcy trustee could ask the court to dismiss your case for “abuse”. In this situation, you will need the services of a resourceful lawyer who can guide you through the second part of the test. The word “abuse” is just a term used to describe a scenario in bankruptcy law and does not mean that you cannot file for Chapter 7 bankruptcy.
This part of the test looks at your disposable income at the end of the month to determine whether part of it can be deducted every month to repay your debt. Your disposable income is the amount that remains after all the allowable expenses have been deducted from your monthly income. These expenses are based on guidelines and standards of the IRS.
Clearly demonstrating your special circumstances and how they affect your case may help you defend against a trustee’s attempts at dismissing your case for abuse. But these circumstances would have to increase your expenses or bring down your income to a level that allows you to pass the means test.
Who can file a Chapter 7?
A married couple or an individual can file a “consumer” Chapter 7 bankruptcy. A sole proprietor or any small business owner or a member of a business partnership can file. However, corporations, Limited Liability Companies or a partnership cannot file for a Chapter 7 bankruptcy.