How the bankruptcy means test determines Chapter 7 eligibility

Once your finances start to spiral out of control in Texas, it becomes increasingly difficult to regain control over them. If your financial situation has gotten to the point where you do not see a realistic way to pay off your debts within the next few years, you may want to consider whether a bankruptcy filing might help you get things back on track.

NerdWallet reports that there are two main types of consumer bankruptcies: Chapter 7 bankruptcies and Chapter 13 bankruptcies. Chapter 7 bankruptcies involve liquidating some of your assets to pay down your debts. Chapter 13 bankruptcies involve reorganizing your debts so that you have a way to start paying them down.

Qualifying for Chapter 7

Because Chapter 7 bankruptcies help those with limited means get their finances back on track, you have to take a means test before you file for Chapter 7. The means test has two parts. The first part requires that you compare your household income against the median household income in Texas. If yours is the lower of the two numbers, you pass the test. If it is not, you have to move to the second part of the test, which asks you to gather documentation about your income and expenses to help determine how much “disposable income” you have available. This amount then determines if you may move forward with filing for Chapter 7.

Failing to qualify for Chapter 7

If you do not qualify for Chapter 7, you may be able to file for Chapter 13. You also have the choice of waiting six months to see if your situation changes before retaking the bankruptcy means test.

Both Chapter 7 and Chapter 13 bankruptcies give you a way through which to discharge debts. However, this tends to happen much more quickly if you file for Chapter 7 as opposed to Chapter 13.