Many working people are only a serious illness or car accident away from serious financial issues. The American economy depends in no small part on consumer debt. People often make major purchases on store credit or credit cards. So long as you can maintain those monthly payments, credit is a great way to connect with the things you need and want without waiting a long time to save up your money.
However, you do have to pay interest on those amounts. If you start to carry a high balance, you could find yourself struggling to make the minimum monthly payments. Missed payments could mean increased interest rates and all kinds of expensive fees. For those struggling with credit card and other unsecured debt, Chapter 7 bankruptcy may be a solution that offers a fresh financial start.
Chapter 7 bankruptcy is for low asset and income individuals
There are several kinds of bankruptcy protections, some of which are for business and others that can help individual people. For individuals, Chapter 7 and Chapter 13 bankruptcy are the common options. Chapter 13 involves restructuring your debt to obtain lower monthly payments. After you complete a repayment plan for several years, the courts will discharge the remaining balance.
Chapter 7 bankruptcy, on the other hand, offers help for those who have little ability to repay their debts. That includes people with few valuable assets and those who have lower incomes. The protections of Chapter 7 bankruptcy include a debt discharge without a repayment plan first. In order to prevent abuses, the government caps the potential income of people seeking Chapter 7 relief based on the average income in their state.
Understanding the Texas means test
If you want to qualify for Chapter 7 bankruptcy relief in Texas, you will first need to pass the state means test. This test basically compares your income to the median income for a household of the same size. The median income for a one-person household in Texas in 2018 is $47,238. For two-person families, that amount increases to $63,148, while families of three have a median income of $69,294. Families with four people have a median income of $78,572 in Texas.
If your income is clearly below that level, you already pass the means test without much calculation required. For those who are quite close to the median income or slightly over it, there’s still hope for Chapter 7 bankruptcy relief. You can make deductions from your income for certain expenses.
Once you pass the means test, you can seek the protections under Chapter 7 bankruptcy. Most unsecured debts, including credit card debt and medical debt is typically eligible for discharge in Chapter 7 bankruptcy. Chapter 7 bankruptcy can offer you the fresh start that you need if you’re struggling financially.