Do I Qualify for Chapter 7 Bankruptcy in Texas?

If you’re finding yourself in a situation where you’re having trouble paying your bills and debts and need a fresh start, filing for bankruptcy can give you a way to do that. There’s more than one kind of bankruptcy, and if you’re interested in Chapter 7, you’ll want to talk to a Chapter 7 bankruptcy lawyer in Plano, TX right away to be sure you qualify and get help in doing it all correctly.

Do I Qualify for Chapter 7 Bankruptcy in Plano, TX?

To qualify for chapter 7 bankruptcy, you are required to take what’s called a “means test.” Basically, this is a type of screening tool that is used to see whether you qualify for Chapter 7 or Chapter 13 bankruptcy.

There’s a common misconception that only people with incomes below the poverty line are able to file for Chapter 7, but actually people with higher incomes can qualify if they also have high expenses. Here’s a bit more about how it works:

The Means Test

The means test starts with you calculating your monthly income. You’ll compare your “current monthly income” to the median income of the state of Texas for your family size. This amount changes regularly with changes in the cost of living, but if you check the US Trustee program website, you can find the chart you’ll need for Texas and for the year you need to figure for.

You calculate your income in this step as gross income, not net income, and you need to look at the last six calendar months to do so. “Gross” and “net” simply refer to income with or without expenses considered. Gross income is all the money that’s coming in. Net income is all the money that’s coming in, minus necessary expenses that are going out.

Once you know your gross income for the last six months, you will multiply it by two. If this is less than the median income in Texas for a family of your size, that’s the simplest route, and you qualify. There’s nothing more you have to do. If your income is more than the median income, don’t give up hope. You can still qualify; you just have to figure in all your monthly expenses. The gross income comparison to the median is just a way of helping the lowest income families find out if they qualify as quickly and easily as possible.

If You Don’t Qualify Initially

If your gross income calculation is too high, you’ll need to move to the next step. You’ll take your gross income and deduct from it all your necessary monthly expenses until you find your net income, or your “disposable income.” Disposable income is any income that is not absolutely required for you to live.

The higher the amount of disposable income you have, the less likely you are to be granted a Chapter 7 bankruptcy. You can find the means test calculation sheets here, but be aware that they can be very complicated to do correctly. In most cases, you are well advised to get a Chapter 7 bankruptcy lawyer to ensure that everything is filled out correctly and you have the best possible chance of qualifying.

Why Chapter 7?

Chapter 7 is the more popular of the two major types of bankruptcy. In a Chapter 7 bankruptcy, also known as a straight bankruptcy, all your assets and debts get filed with the court and a trustee is appointed to sell your property and pay your debts. However, a large amount of the property, if not all of it, is considered exempt.

The goal of a bankruptcy is not to get your creditors all their money. The goal is to get them as much of their money as possible while also allowing you to remain a productive member of society. If you lose everything you have, you can’t really go back to work and continue contributing; therefore, many of the basic things that you really need are exempt.

Each state has its own rules about what property is exempt, and there are federal rules, as well. Here in Texas, the exemptions are fairly generous compared to other states. Not only that, but Texas is also one of just a handful of states that allows you to choose whether you want to go with Texas state exemptions or the federal exemptions.

Here’s what Texas will allow you to exempt from sale if you declare Chapter 7 bankruptcy:

Your Primary Residence

For the most part, you will be allowed to protect your home and its equity from sale in your bankruptcy. If you live in a rural area, you can protect property up to 100 acres. If you live in a city, town, or village, you’re only protected if you own less than 10 acres. Anything beyond these limits would need to be sold, if possible.

Personal Property

Personal property refers to most things you own that are not your home, a business, or real estate. This includes your car, the furniture in your house, your clothes and home goods, livestock, and a few other things. If you are filing for bankruptcy as a single person, you are allowed to have up to $50,000 worth of property protected. For anyone who is married and filing jointly, the total is $100,000.

It’s not just the dollar amount, however. There are certain items that qualify for personal property protection and some that do not. Personal property that you can protect includes your motor vehicle vehicles, up to two firearms, your home furnishings and any family heirlooms, jewelry in the amount of up to $12,500, sporting equipment and bicycles, food, clothes, and livestock. You’re only allowed to protect certain amounts of certain types of livestock, so talk with your lawyer about what exactly can be exempt.

Some personal property is always exempt and doesn’t even count towards your $50,000 limit. Personal property that is always exempt includes any health aids you need, like a wheelchair, books with any religious writings, burial plots, and child or spousal support. When it comes to motor vehicles, you can exempt the complete value of one motor vehicle for every person in your household who holds a driver’s license.

Retirement and Insurance

Your retirement account or pension, if you have one, usually qualifies as an exemption for bankruptcy. Texas law allows you to exempt even more retirement account types and pensions then federal law. In addition, your life insurance policy or other insurance benefits may be exempt. Texas generally allows you to exempt life, health, and accident benefits that either have been paid or are due to be paid. You can also generally exempt your uniform group insurance benefits.
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Talk to a Chapter 7 Bankruptcy Lawyer Today

If you’re thinking about bankruptcy, you need to be talking to a lawyer. It’s easy to get confused by all the red tape, and if that happens, you may lose property or income that you would otherwise be entitled to keep. If you’re considering bankruptcy, talk to us today at the Pelley Law Office in Plano, Sherman, or Dallas, TX. 

Contact Our Texas Bankruptcy Law Firm For Help Today

If you’re facing bankruptcy in Texas, we’re here to help. Contact the experienced bankruptcy lawyers at Pelley Law Office, L.L.P., today to schedule a free consultation.

We proudly serve Plano, Dallas, Sherman, and the surrounding areas.

Pelley Law Office L.L.P. – Plano Office
Address: 1312 14th St, Plano, TX 75074
Phone: (972) 608-0335
Hours: 24/7

Our firm is located near you. Find us with our GeoCoordinates: 33.0180322,-96.6952916,863

Pelley Law Office L.L.P. – Sherman Office

Address: 905 N Travis St, Sherman, TX 75090
Phone: (903) 813-4778
Hours: 24/7

Our firm is located near you. Find us with our GeoCoordinates: 33.6445846,-96.6113141,857