Weighing the pros and cons of filing for bankruptcy can be stressful and, with two types of bankruptcy protection available—Chapter 7 and Chapter 13—it can be even more difficult to determine just what's right for you. While most consumers considering bankruptcy hope to file for Chapter 7, which would allow them to discharge all of their debts, not everyone qualifies for this type of bankruptcy protection. That's where the means test comes into play; the test is a formula that uses your income over the past six months to determine whether it's possible for you to file for Chapter 7 bankruptcy. Read on to learn more about the means test and qualifying for Chapter 7 bankruptcy protection.
The Means Test Determines Whether You Qualify for Chapter 7 Bankruptcy
The means test exists to separate lower-income people who truly can't afford to pay their debts from higher-income earners who are capable of paying off at least a portion of their debts in a series of payments. However, you don't have to be a pauper, or living on the streets, to qualify for Chapter 7 bankruptcy—your expenses just have to outweigh your earnings.
The first step of the means test is determining whether your income is higher or lower than the annual median income in your state for the number of people in your household. Add up all your income—including any wages, unemployment, spousal support, social security payments, and payments from investments—and compare it to the median annual income for your state. In Texas, the median income is as follows:
Median Income by Household Size in Texas
- $44,230 for a one-person household
- $59,366 for a two-person household
- $62,710 for a three-person household
- $72,698 for a four-person household
- $81,098 for a five-person household
- $89,498 for a six-person household
- $97,898 is a seven-person household
- $106,298 for an eight-person household
- $114,698 for a nine-person household
- $123,098 for a ten-person household
If your income is lower than the Texas median income for a household of your size, you will be eligible to file for Chapter 7 bankruptcy protection. However, because filing for bankruptcy can have a severe and long-lasting impact, it's best to discuss your options with an experienced consumer bankruptcy attorney to determine if filing for Chapter 7 bankruptcy is right for your particular situation.
Even if You Make More, You May Still Qualify for Ch. 7 Bankruptcy
Even if your household income is greater than the Texas state median, you may still be eligible to file for Chapter 7 bankruptcy if you have significant expenses. Completing the rest of the means test can give you more information. The test will subtract specific monthly expenses, known as “allowed expenses,”—such as housing, basic necessities, and transportation—from what you make to determine your disposable income. If your disposable income is low enough, you may still qualify for Chapter 7 bankruptcy protection; otherwise, Chapter 13 bankruptcy may be a better option.
Exemptions to the Means Test in Texas
Texas does offer some exemptions to its means test for bankruptcy. For example, if you are a disabled veteran whose debt was amassed while performing homeland defense or while on active duty, you may not have to take the means test to file for Chapter 7 bankruptcy. Likewise, if your debt is mostly not consumer debt, you may also be exempt from taking the means test to determine eligibility.
Are You Considering Filing for Bankruptcy?
If you're struggling with insurmountable debt, filing for Chapter 7 bankruptcy can help eliminate your debt and give you a clean slate. However, filing for bankruptcy is not without consequences. Discussing your situation with an experienced consumer bankruptcy attorney can help you determine if filing for bankruptcy is right for you.
Contact the skilled attorneys with Packard Law Firm today for a free, no-obligation evaluation of your Texas consumer bankruptcy case. Our seasoned attorneys have helped numerous clients through the bankruptcy process, and are ready and waiting to answer any questions you may have. Don't spend another day with unpaid debts hanging over you—reach out to us at our law office in San Antonio today!