Passing the Income Side of the Means Test in Texas

Most people can pass the means test and qualify for Chapter 7 “straight bankruptcy” simply because their income is no more than the “median income” for their state and family size. So if you are considering bankruptcy, this blog post can help you find out if you are among the many people whose income easily qualifies them for Chapter 7.

The Point of the Means Test

Congress’ clear purpose behind the means test was to make it harder for some people to file Chapter 7. The idea was that those who have the means to pay a meaningful amount of their debt to their creditors in a three-to-five-year Chapter 13 payment plan ought to do so, instead of being allowed to just write off all their debts in a Chapter 7 case.

Pass the First, Income Part of the Means Test, and You’re Done

The means test is potentially a messy, multi-level test. The good news for most people is that they can pass the income part of the test. That involves comparing their “current monthly income” to a published “median family income” amount. If your income is no more than the median, then you can file a Chapter 7 case. You don’t have to mess with the rest of the test, particularly the complicated expenses portion of the test.

Determining Your “Current Monthly Income”

This is a very precisely definition of “income,” and one that can have odd consequences. Here’s how it is calculated.

1. It is NOT based on something simple like your taxable income for the previous calendar year. Rather, it is based on the precise amount of income you received during the six full calendar months before your case was filed. So, for example, if your case was filed on September 25, 2016, add up every dollar you received during the six-month period from March 1, 2016 through August 31, 2016. After getting the six-month total, divide that by six to come up with a monthly average.
2. The income to be included for this calculation is not just your “taxable income,” but just about every bit of income you’ve gotten from all sources during that period of time, including irregular sources like child and spousal support payments, insurance settlements, unemployment benefits, and bonuses. But exclude all social security income, as well as income tax refunds.
3. Once you have that six-month average—your “current monthly income”—multiply that by 12 for your annual income. Compare that to the median income for Texas for your size family:

(These median income amounts are valid for case filed from Mar 1, 2016 through the next time they will be changed, likely in October or November 2016. Check this website to see if these amounts have been adjusted, and to determine the new median amounts.)

Income Not Larger Than the Median Income?

If your annual income, calculated exactly as described above, is no larger than the median income amounts for your family size in the table, then you have cleared the means test hurdle. You can skip the expenses portion of the test.

Or, to get an answer if you are in the Dallas-Fort Worth Metroplex, call me so I can help you with all this. I’m Carrie Weir, a highly experienced Texas bankruptcy lawyer. I serve the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please contact me for a free and confidential consultation. Just call me at 972-772-3083 or use the contact form here. Thank you for reading this blog post.