Declaring bankruptcy used to be a matter of filing the right paperwork and voila: full discharge, and you get to move on with your life! Now, personal bankruptcy in Montgomery County, TX requires more steps. One of these is the Means Test, which uses the median income in your county to determine whether you qualify for a Chapter 7 (straight discharge) or Chapter 13 (payments over three to five years) bankruptcy filing. Here is an explanation of the Means Test and how it affects your bankruptcy filing.
What is the Means Test?
The Means Test is the result of bankruptcy reform legislation passed in 2005. At the time, there was concern that those filing immediately for Chapter 7 bankruptcy had the ability to pay their debts but simply did not wish to do so. The law created the Means Test to determine if that was true and, if so, debtors would qualify for a Chapter 13 payment plan rather than a straight discharge from a Chapter 7.
This is how it works: A bankruptcy attorney accesses the median income for your area. If your current income is below that amount, you immediately qualify for a Chapter 7 bankruptcy and can proceed. However, if you make or are above the median income, you will either have to file a Chapter 13 bankruptcy or take additional steps to show you have expenses or circumstances that make it impossible to make payments towards your debt.
In Texas, the median income for a household of one is $50,144. This rises with the size of the household—for two, it is $65,429, for three it is $72,271 and for four, the median average income is $83,960. If your income is below these medians for your household size, you will automatically qualify.
However, if you do not pass the Means Test on first glance, you must delve further. A full Means Test calculation considers your true expenses and determines whether you have disposable income that can go towards debt. This will average your income and costs over the year, including any seasonal work. It is best to go over this with a bankruptcy attorney so you can determine which expenses are reasonable and to be sure you do not overlook any expenses that can help you pass the Means Test.
If there is no discernible way to pass the Means Test, your only option for debt relief is a Chapter 13 bankruptcy. These plans last for three to five years and require that your disposable income be paid into a bankruptcy estate to pay administration fees and debt. Chapter 13 is often an excellent option if you have a home in foreclosure, past-due car payments or tax debt. The proceeds pay these debts, and as long as your other payments are current, it will help you out of your foreclosure or tax situation. But if you have medical or credit card debt, this is often a hassle and a sacrifice—nevertheless, it will get creditors off your bank.
Declaring personal bankruptcy in Montgomery County, TX can make your life easier, but first you must pass the Means Test. James R. Jones, Attorney at Law, can fully analyze your situation and see which option works best for you. Contact our office today to schedule an appointment.