Chapter 7 bankruptcy is a fast and low-cost solution for those with more debt than they can manage on their current income. Also known as liquidation bankruptcy, a Chapter 7 filing may require that you sell off property that you cannot exempt.
After using any sale proceeds to repay your creditors, it will then be a relatively short process to secure the discharge of the remaining balance on your unsecured debts. Instead of making three years of payments or more as required in a Chapter 13 filing, you could have a discharge of your debts in under a year with successful Chapter 7 proceedings.
There are strict limits regarding the income of those who file for Chapter 7 bankruptcy. Will you be able to pass the means test to qualify?
How means testing works
To pass the means test, you have to calculate your annual income based on your last six months of income. You can make some adjustments to that figure for certain necessary expenses. After you compare your adjusted household income to the state median for your household size, you then determine if you qualify.
Those filing for bankruptcy after November 1, 2022, in Texas can qualify for Chapter 7 bankruptcy with $55,591 in income. If there are two people in the household, that income threshold increases to $71,860, while three-person households can have up to $80,765 in adjusted income. Four-person families can have income of up to $94,213, and larger families can add another $9,900 for each additional member over the first four.
What if you don't quite pass the test?
Individuals who are on the edge of qualifying for Chapter 7 bankruptcy are among those who would benefit the most from talking with an attorney as they make decisions about their financial future. A lawyer can help with the process of adjusting income and may be able to help you qualify when you believe that you would not.
Lawyers can also help you review your property and potentially determine that you have too much at risk in the liquidation process, which might make Chapter 13 proceedings a better option for you. Those who pass the means test have access to the fastest solution for unsecured debt available to individuals in the United States.
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