Texas Bankruptcy and the Role of the Means Test

Texas bankruptcy filings have seen significant changes over the years, with many individuals and businesses seeking relief from overwhelming debt. One crucial aspect of the bankruptcy process in Texas, as well as across the United States, is the means test, which determines whether a debtor qualifies for Chapter 7 bankruptcy or must file for Chapter 13 instead.

The means test was established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Its primary purpose is to prevent high-income individuals from filing for Chapter 7 bankruptcy, which allows for the liquidation of non-exempt assets to clear debts. The means test assesses a debtor's income and expenses to ensure that only those genuinely in need and unable to repay their debts can seek the simpler and more favorable Chapter 7 option.

In Texas, the means test begins by comparing the debtor's average monthly income over the six months preceding the bankruptcy filing to the median income for a household of the same size in Texas. If the debtor's income is below this median threshold, they automatically qualify for Chapter 7. As of 2023, the median income for a single-person household in Texas is approximately $61,000, while larger families have higher thresholds.

If the debtor's income exceeds the median, they will proceed to the second part of the means test, which involves calculating their disposable income. This is done by deducting allowable expenses, such as housing costs, food, healthcare, and other necessary living expenses, from their monthly income. If the result shows that the debtor has enough disposable income to repay a portion of their debts, they will be required to file for Chapter 13 bankruptcy, which involves creating a repayment plan that typically lasts three to five years.

Understanding the means test is crucial for Texas residents considering bankruptcy. An attorney specializing in bankruptcy law can guide individuals through this complex process, ensuring that all income and expenses are accurately reported. Additionally, they can help debtors navigate any unique state-specific exemptions that may apply.

Another vital consideration for those filing for bankruptcy in Texas is the potential impact on assets. Texas is known for its generous bankruptcy exemptions, which allow filers to protect certain assets from liquidation. For example, individuals can exempt their homestead, personal property, and retirement accounts up to specific limits, providing a safety net during the bankruptcy process.

In summary, the means test plays a pivotal role in Texas bankruptcy proceedings, determining eligibility for Chapter 7 or Chapter 13. By understanding the criteria involved and seeking professional help, debtors can navigate this challenging landscape more effectively. As the financial landscape continues to evolve, being informed about these processes remains vital for residents seeking relief from debt.