How to Navigate the Bankruptcy Means Test in Texas

 Posted on April 08, 2024 in Bankruptcy

Are you considering filing for bankruptcy in Texas? If so, you will need to understand the bankruptcy means test and how it applies to your unique financial situation. The means test is crucial in determining whether you qualify for Chapter 7 bankruptcy or must file for Chapter 13 instead. A Texas lawyer can guide you through the process of the bankruptcy means test.

The Purpose of the Means Test

The bankruptcy means test was introduced as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Its primary purpose is to prevent individuals with higher incomes from filing for Chapter 7 bankruptcy, which allows for the discharge of most unsecured debts. Instead, these individuals may be required to file for Chapter 13 bankruptcy, which involves a repayment plan lasting three to five years.

Step 1: Determine Your Average Monthly Income

To begin the means test, calculate your average monthly income for the six months prior to filing for bankruptcy. Include all sources of income, such as wages, salaries, bonuses, commissions, and any other regular income you receive. If you are married and filing jointly, include your spouse’s income as well.

Analyze your average monthly income in relation to the median income for a household of your size in Texas. The U.S. Department of Justice states that the median household income in Texas varies depending on family size. Here are the figures for different household sizes:

• 1-person household: $60,040
• 2-person household: $77,611
• 3-person household: $87,228
• 4-person household: $101,753

If your income falls below the state median, you automatically qualify for Chapter 7 bankruptcy. If your income exceeds the median, move on to the next step.

Step 2: Calculate Your Disposable Income

Should your income exceed the state median, filling out the full means test form to calculate your disposable income will be necessary. Start by deducting allowed expenses from your average monthly income. These expenses include:

• Housing and utilities
• Food and clothing
• Transportation
• Medical expenses
• Insurance
• Child support and alimony
• Education expenses
• Charitable contributions (up to 15% of your gross annual income)

Use the IRS National Standards and Texas-specific figures for these categories when applicable. After deducting these expenses, you will arrive at your disposable income.

Step 3: Determine Your Eligibility for Chapter 7

If your disposable income is less than $138.83 monthly, you pass the means test and can file for Chapter 7 bankruptcy. If your disposable income is between $138.83 and $231.67 per month, multiply your disposable income by 60. If the result is less than $8,175, you still qualify for Chapter 7.

If your disposable income is greater than $231.67 per month, you likely will not qualify for Chapter 7 and may need to consider filing for Chapter 13 bankruptcy instead.

Special Circumstances and Exceptions

In some cases, you may be able to demonstrate special circumstances that justify additional expenses or income adjustments. These circumstances might include a serious medical condition, a call to active duty in the Armed Forces, or a recent job loss. If you believe you have special circumstances, discuss them with an experienced Texas bankruptcy attorney to determine if they can help you qualify for Chapter 7.

Contact an Arlington, TX Bankruptcy Lawyer

Understanding bankruptcy means tests in Texas can be intricate, yet grasping this process is vital to ensure you file under the correct chapter. By following these steps and working with a Dallas, TX bankruptcy attorney, you can make informed decisions about your financial future and take the first steps towards a fresh start. Call Acker Warren P.C. at 817-752-9033 for a free consultation virtually or in person.