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Jan. 17, 2019

Chapter 7 Bankruptcy Helps People Wipe Out their Debts and Start Over

Whatever the reason for their debts, filing for bankruptcy is often the best way to get a financial fresh start. Generally, individuals will either file a Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 bankruptcy eliminates unsecured debts, but to qualify, you must have little or no disposable income.

Chapter 7 Bankruptcy is for Incomes Below the Texas Median Income

To determine if you can file for Chapter 7 bankruptcy, you will need to get credit counseling within 180 days before filing, fill out the Current Monthly Income form, and if needed, the Means Test Calculation form. To qualify for Chapter 7 bankruptcy, your calculated current monthly income should be less than the Texas state average (median) income. The current monthly income is really the average (median) income that you received from all sources during the six months before you file for bankruptcy. This includes the following:

  • Gross (before payroll deductions) wages, salary, tips, bonuses, overtime, commissions

  • Alimony and maintenance payments

  • Money from anyone who helps you pay for household expenses for you or your dependents including child support, contributions from an unmarried partner, members of your household, your dependents, parents, and roommates. It also includes contributions from your spouse if your spouse is not part of the filing

  • Net income from rental properties or from operating a business, profession or farm (calculated by subtracting operating expenses from gross receipts)

  • Income from interest, dividends and royalties

  • Unemployment payments that are not a Social Security benefit

  • Pension or retirement income (not Social Security)

Income from Social Security, war crime or other reparations for crimes against humanity or terrorism are not included as part of your monthly income. After calculating your monthly income, you must compare it to the median family income for a similar-size household in the State of Texas (currently $48,948) found here. If your monthly income is higher than the median, a means test is used to check if you would have enough money left over to pay some debts after all allowable deductions.

The Means Test lets you Make Income Adjustments to Qualify for Chapter 7

If your calculated monthly income exceeds the Texas median income level, you can use the Means Test Calculation form to adjust your current monthly income by subtracting other expenses including:

  • Any of your spouse’s income not used to pay household expenses

  • The amount of standard IRS deductions you might claim

  • Food, clothing and related household expenses

  • Out-of-pocket health care allowance

  • Housing and utility expenses, including insurance and operating expenses

  • Mortgage or rent expenses

  • Local transportation expenses

  • Vehicle operation, ownership and/or lease expenses

  • Other public transportation expenses

  • Federal, state and local taxes

  • Involuntary payroll deductions such as union dues, uniform costs, retirement contributions

  • Insurance premiums for term life policies

  • Court-ordered payments such as spousal or child support

  • Some education and childcare expenses

  • Healthcare expenses not covered by insurance

  • Health insurance, disability insurance and contributions to health savings accounts

  • Payments for debts secured by property you own (mortgage, car payments)

  • Other expenses listed in the form

After deducting these payments and expenses from your calculated monthly income, if the amount is less than $12,850 (or less than 25 percent of your unsecured debt), then you will pass the means test and qualify for Chapter 7 bankruptcy.

A Skilled Bankruptcy Attorney at Oliva Law can Guide you Through the Chapter 7 Means Test Filings

The Oliva law firm helps people in Brownsville, McAllen, Harlingen, Corpus Christi and throughout the Rio Grande Valley get a fresh start with Chapter 7 bankruptcy.