Chapter 7 bankruptcy proceedings are no-asset cases, and do not include a debt reorganization or payment plan filing. Although a debtor is permitted to keep certain “exempt” properties, the bankruptcy trustee gathers any remaining assets and sells them in a process of liquidation. Relief under Chapter 7 is available no matter the amount of debt. For many people, Chapter 7 bankruptcy can allow a fresh start.
Qualifying for Chapter 7 Bankruptcy
The main qualification for Chapter 7 bankruptcy is income level. A debtor’s current monthly income is calculated by averaging income for the six months prior to filing. Under the Bankruptcy Code, if a debtor’s current monthly income is higher than the state median, a “means test” must be applied to determine whether bankruptcy filing is abusive. The purpose of the means test is to determine whether the bankruptcy petitioner has enough money left over, after all of their allowable expenses are deducted, to pay some of their debts. If they do, the Chapter 7 filing is considered an abuse of the system.
Currently, if the amount that would be available to pay creditors over the next five years is more than $12,850 (or more than 25% of their unsecured debt), there is a presumption of abuse. However, the debtor has an opportunity to rebut the presumption of abuse by showing they have special circumstances. If they cannot, the case will usually be converted to Chapter 13 or be dismissed.
Two other requirements affect eligibility. A debtor cannot file for bankruptcy if in the prior 180 days a bankruptcy court had dismissed their case for failure to appear or comply, or if the debtor voluntarily dismissed a petition. A debtor must also have had credit counseling from an approved agency within the 180 days prior to filing.
There are several important filing requirements for debtors in a Chapter 7 case. First, the debtor must file a petition with the bankruptcy court in their jurisdiction. Additionally, he or she must file:
- Schedules of assets and liabilities
- Schedule of current income and expenditures
- A statement of financial affairs
- Schedule of executory contracts and unexpired leases
Individuals with primarily consumer debts must also file:
- Proof of credit counseling and a copy of any repayment plan created during it
- Evidence of any payments from employers in the 60 days prior to filing
- A statement of monthly net income and any anticipated increase in income or expenses
- A record of any interest the debtor has in qualified education or tuition accounts
Contact a knowledgeable attorney for more information about bankruptcy in Texas
For more information about bankruptcy, contact an experienced Texas bankruptcy lawyer.