Understanding Bankruptcy Eligibility in Texas

Bankruptcy can be a complex process, particularly when it comes to understanding eligibility requirements in Texas. Knowing whether you qualify for bankruptcy can help you make informed decisions about your financial future. This guide outlines the key aspects of bankruptcy eligibility in Texas, including the types of bankruptcy available and the criteria you must meet.

Types of Bankruptcy

In Texas, individuals primarily file for two types of bankruptcy: Chapter 7 and Chapter 13. Each type has its own eligibility requirements:

• Chapter 7 Bankruptcy: Often referred to as "liquidation bankruptcy," Chapter 7 allows individuals to discharge most unsecured debts. Eligibility is determined by the means test, which assesses your income level in relation to the median income for a household of your size in Texas.
• Chapter 13 Bankruptcy: Known as "reorganization bankruptcy," Chapter 13 allows individuals to create a repayment plan to pay back their debts over three to five years. Eligibility is based on your regular income and total unsecured and secured debt levels. As of 2023, secured debts must be less than $1,257,850, and unsecured debts must be less than $419,275.

The Means Test

The means test is a critical factor for determining eligibility for Chapter 7 bankruptcy. This test evaluates your income and expenses to see if you qualify:

1. Calculate your average monthly income over the last six months.
2. Compare your average monthly income to the median income for a family of your size in Texas.
3. If your income is below the median, you qualify for Chapter 7. If it’s above, you must complete further calculations to determine if you can afford to repay some of your debts, which might disqualify you.

Credit Counseling Requirement

Before filing for bankruptcy in Texas, individuals must complete credit counseling from an approved agency within six months prior to filing. This session helps you evaluate your financial situation and explore alternatives to bankruptcy. A certificate from the counseling agency is required to accompany your bankruptcy filing.

Residency Requirement

To file for bankruptcy in Texas, you must either reside in the state or have a principal place of business or a principal property located in Texas. Generally, you need to have lived in Texas for at least 91 days preceding the filing.

Filing Restrictions

Individuals should be aware that certain restrictions apply to filing for bankruptcy. If you previously filed for Chapter 7 bankruptcy, you must wait eight years before filing again. Conversely, if you filed for Chapter 13 bankruptcy, the waiting period is two years before you can file for Chapter 7.

Exemptions in Texas Bankruptcy

Texas offers generous exemptions, which allow you to protect certain assets from liquidation in Chapter 7 bankruptcy. Some key exemptions include:

• Your homestead (up to a certain number of acres)
• Personal property, such as clothing and household goods
• Retirement accounts, such as 401(k)s and IRAs
• Tools of your trade (up to a specified value)

Conclusion

Understanding bankruptcy eligibility in Texas is crucial for anyone considering this option. By familiarizing yourself with the types of bankruptcy, the means test, and eligibility requirements, you can navigate this challenging process more effectively. Always consider consulting with a qualified bankruptcy attorney who can provide personalized guidance based on your situation and assist in the filing process.