The bankruptcy abuse prevention and consumer protection act of 2005 require individuals to take a “means test” to determine if they can file Chapter 7 bankruptcy. The test determines if the personal income is low enough to file Chapter 7 bankruptcy. The law was designed to keep high-income filers from filing Chapter 7 and eliminating their debt, and instead to file Chapter 13 to repay a portion of their debt.
To find the median income for your state, the figures from the U.S. Census is used. If your income is below your state’s median you may qualify for Chapter 7. If higher, you will need to calculate how much living expenses you have left over to pay your debt. The bankruptcy court may determine you have enough to repay your creditors and switch you to a Chapter 13 bankruptcy.
Using the average income from the prior six months, this amount or current monthly income, and then deducting your monthly expenses will bring you to your disposable income. The lower your disposable income, the more chance you can file Chapter 7 bankruptcy. If you have a decent amount of disposable income, you are expected to use that to repay creditors.
You Don’t Have to be Broke
You can have a high income and still qualify for Chapter 7 if you have high payments such as taxes, mortgage, and vehicle payments.
If you are considering bankruptcy and don’t know which way to file to be in your best interest, speak to a qualified Houston bankruptcy attorney to see what options you have.