Most Americans owe debts in some form. While these debts are manageable in many cases, unexpected financial difficulties or other issues may make it difficult or impossible to repay the debts a person owes. Bankruptcy can offer debt relief in these cases, and for some debtors, Chapter 7 bankruptcy is the ideal option, and it will allow most types of debts to be discharged after certain types of assets are liquidated. However, to qualify for Chapter 7 bankruptcy, a person will need to pass a means test.
Income and Expenses Considered in the Means Test
The means test is meant to prevent abuse of the bankruptcy laws, and it limits the ability to file for Chapter 7 bankruptcy to those who have limited disposable income that would allow them to repay the debts they owe. The means test consists of two parts. The first part examines a person’s income and compares it to the median income in their state. A debtor will be required to report all sources of income, including their gross wages or salary, bonuses, commissions, income earned through businesses or real estate properties, unemployment compensation, and retirement/pension benefits. If the total amount of a debtor’s income is below the median income for their state, they will qualify for Chapter 7 bankruptcy.
In Texas, the median annual income for bankruptcy cases filed after May 15, 2021 is as follows:
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