Chapter 7 bankruptcy allows individuals who are in financial straits to discharge their credit card and other unsecured debts. In order to qualify for chapter 7 bankruptcy, you must pass the means test. The means test will determine if you can file for Chapter 7 bankruptcy, or if another chapter would be required instead.
Toronjo & Prosser Law is trusted among Texans who need a way to get out from under-crushing debt. We can review your financial situation and advise you as to whether Chapter 7 fits your circumstances. Then, we can get to work handling your bankruptcy.
Who Can File For Chapter 7 Bankruptcy?
Individuals struggling with debt may be able to use Chapter 7 bankruptcy to sell off assets and pay down their balances. This is known as liquidation bankruptcy and may be used to take care of the following types of unsecured consumer debts:
- Credit card bills
- Medical bills
- Utility bills (electric, water, etc.)
- Unsecured court judgments
- Collection agency debts
- Personal loans
However, not everyone is eligible to file for Chapter 7 bankruptcy. An eligible filer must earn less than the median income in Texas for the same household size or, if he or she exceeds that amount, pass a means test.
What Is the Texas Median Income?
One can think of the Texas median income as a ceiling. As the number of people within a filer’s household increases, so too does the income ceiling. Provided the filer is below that ceiling, he or she will qualify for Chapter 7.
The Chapter 7 bankruptcy filer will need to average his or her monthly income for the past six calendar months, and then multiply that figure by 12 to determine the annual income for purposes of the means test. The filer should be able to document those figures as well. Most but not all sources of income have to be counted in doing this calculation.
Bear in mind, however, that the Texas median income frequently changes based on updated data. An experienced attorney is best qualified to evaluate your income to determine if you earn less than the state’s median income ceiling.
If you earn more than the Texas median income, you must pass a means test.
What Is the Bankruptcy Means Test?
The means test takes a detailed look at your financial situation to determine if those who earn more than the Texas median income can still file for Chapter 7 bankruptcy. The objective is to ascertain whether you have the ability to repay a portion of your debts over time. To that end, the means test takes into account your income and certain expenses, the latter of which may help you qualify even if your income exceeds the state’s median income.
First, it is important that Chapter 7 filers understand what is considered “income” for purposes of the means test. Almost all sources of income will count, including wages and salary, overtime and bonuses, business and rental income, and many others. But not everything is counted against the filer, including some forms of disability income. To determine whether what you have is “income” for the means test, speak with a knowledgeable Dallas bankruptcy attorney.
You should also remember that household size will make a difference. The more individuals in your household, the more you can earn for purposes of the means test. Household size generally includes the debtor, the debtor’s spouse, and dependents. A household may also consist of unmarried individuals and their children.
Means Test Expense Deductions
The filer is allowed to deduct a broad range of household expenses in order to reduce the amount of income that is counted for purposes of the means test. These are only some of the deductible expenses:
- Rent
- Mortgage
- Car payment
- Utilities
- Food
- Gas
- Clothing
- Taxes
- Health or disability insurance premiums
- Daycare expenses
- Child support expenses
Some of these expenses can be taken up to a certain, “standard” amount. For others, the filer can deduct the actual amount spent. Also, these expenses cover your entire household. So, for instance, the amount of money you pay for your children’s health insurance premiums may be deducted.
Taking these deductions is a lot like taking deductions on your income tax return, which is where doing so can quickly get complicated. You should speak with an experienced bankruptcy attorney who can help you know which deductions to take and for how much.
Exemptions From the Means Test
Chapter 7 bankruptcy is available for both individuals and businesses. But the means test is only applicable to individuals who primarily have consumer debts. That means businesses with non-consumer debts are not required to take the test. You are also exempt if one of the following applies to you:
- You are a disabled veteran and you incurred most of your debt while you were on active duty or performing a homeland defense activity
- You are a military reservist or member of the National Guard and you were called to active duty after September 11, 2001
Contact Our Dallas Bankruptcy Means Test Attorney
Chapter 7 bankruptcy is a great option for debtors who are ready to turn the page on overwhelming debt. But the rules and qualifications can be complex. Even if you are not eligible for a Chapter 7 bankruptcy, you have other alternatives available. Let Toronjo & Prosser Law work with you to find the best solution to your debt problem. Contact us today.