Texas Means Test for Chapter 7 Bankruptcy

Kemp attorney advises on the qualification process for debt discharge

Debt discharge through Chapter 7 bankruptcy is a powerful tool for people who have fallen so far behind on their debts that there is no reasonable way for them to break even. Due to the fact that creditors are disadvantaged during a Chapter 7 proceeding, U.S. law limits this type of relief to those who truly need it. To determine if someone is eligible to have their debts discharged, a formula called the “means test” is used. At Jenny C. Parks, PC in Kemp, you will work with an experienced bankruptcy attorney who helps residents of Kaufman and Rockwall counties understand the means test and the options that are available to relieve their financial burden.

What is a Chapter 7 means test?

The means test was established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This legislation was a reaction to creditors’ claims that they suffered because debtors who were capable of paying off what they owed were using bankruptcy to avoid their obligations. Though these protests might have been overstated, the means test now must be satisfied in order for most people to go forward with a Chapter 7 debt discharge.

How the means test works

Under the means test, you can receive Chapter 7 protection if the combined income of the people living in your home is below the Texas median for households of your size. The relevant amount changes periodically, so it is important to check with a knowledgeable Chapter 7 bankruptcy attorney before you decide how to proceed. On November 1, 2022, the annual median income amount for someone living alone was set at $55,591.

There are some situations where an individual or family is collecting an income higher than the median, yet still is struggling with overwhelming debt. In that case, the court conducts a more thorough means test that considers various expenses, such as housing costs, car payments, food expenses and utility charges, along with household income. If the judge determines that you do not have any disposable income after basic expenses are subtracted, then you will be able to obtain Chapter 7 protection.

Calculating income and household size

It’s important to remember that income used for the means test does not just include wages. Unemployment benefits, retirement income, child support payments and other funds coming into your household are also counted. Families in transition might have difficulty figuring out how many people qualify as family members. In addition to living arrangements, judges might look at economic contributions and dependent status on tax returns.

Exemptions from the Chapter 7 means test

Some debtors are exempted from the means test when seeking to eliminate their debts through Chapter 7. Disabled veterans and certain active duty military personnel and reservists do not have to meet the means tests standard. Individuals whose obligations are mostly business-related might be able to bypass the means test as well.

What happens if a debtor is not eligible for Chapter 7 bankruptcy?

If you do not qualify for Chapter 7 bankruptcy because of the means test or because you have filed too recently, there are still ways that you can relieve your debt burden. After being denied a Chapter 7 debt discharge, many people opt for a Chapter 13 repayment plan. Under Chapter 13, the filer also receives the benefit of an automatic stay, which stops all collection efforts while debts are restructured in a way that the filer can reasonably pay back over a period of three to five years.

Contact an experienced Texas bankruptcy lawyer for a consultation

Jenny C. Parks, PC in Kemp advises residents of Kaufman and Rockwall counties on means test qualification and other aspects of the bankruptcy process. For a consultation regarding your options, please call 972-472-8888 or contact my firm online.