If you are considering filing for a Chapter 7 bankruptcy in Texas, you may have read about the means test. What is the means test and how does it impact your ability to file for this type of bankruptcy? Here’s what you need to know.
The Purpose of the Chapter 7 Means Test
A chapter 7 bankruptcy allows you to discharge some or all of your secured debt without paying it back. This makes it important for the state to ensure that those granted a Chapter 7 bankruptcy truly cannot afford to pay off their debt without causing serious financial harm to their families.
The means test was designed to determine if a family had enough disposable income to pay back their debts or not. If a family has enough disposable income to satisfy their debts within a reasonable time period, a Chapter 13 bankruptcy is likely to be a better fit.
How to Pass the Means Test
There are two ways to pass the Chapter 7 bankruptcy means test:
Below the Median Income
If your annual income is below the median (average) income for a family of your size in your area, you automatically pass the means test and no further action is required.
Calculate Disposable Income
If your income is above the median for a family of your size in your area, this doesn’t mean that you automatically fail the means test. The second way to pass the test is to determine that what you owe exceeds your disposable income.
Your disposable income, or the money you have left over after necessary expenses to pay off your debts, is calculated by subtracting your total expenses from your annual income. If you do not have enough disposable income after necessary expenses, you may qualify for all or a portion of your unsecured debts to be discharged.
When to Work with an Experienced Texas Bankruptcy Lawyer
It’s possible to file for a Chapter 7 bankruptcy on your own without the help of an attorney, however, it’s not recommended. A Chapter 7 bankruptcy requires you to liquidate any non-exempt assets (for example, jewelry or valuable heirlooms) and use the funds to pay down your debt as much as possible before any of it is discharged. Failure to list your assets properly could result in assets you may have been able to keep to be liquidated.