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Understanding means tests in bankruptcy

A Texas bankruptcy case does not begin until a petition is filed, and it is important to complete some preliminary steps before filing. Chapter 7 is ideal for liquidation purposes, allowing many unsecured debts to be discharged. However, this is reserved for those who are in a financial state that requires legal action when pursuing a fresh start. Those with sufficient means are not eligible for Chapter 7, and eligibility is determined through means testing.

To complete the means testing, a candidate must fill out forms 22A and 22C where the applicable median family income is entered. The median income values are determined by the U.S. Census Bureau and are updated to reflect current national trends. Additional financial standards from national and regional sources determine allowable living expenses based on needs, such as transportation, housing, food, clothing, healthcare and similar categories. In most cases, certain standards are used to determine these values. However, there may be cases where a petitioner might face greater expenses. When this occurs, a Chapter 7 candidate may need to provide supporting information to explain the shortfall.

As computations are completed, an individual can evaluate whether Chapter 7 is acceptable for their situation. If authorities find that the Chapter 7 motion is not being abused, the applicant can file a petition with the bankruptcy court and proceed as directed with meetings and further actions. Collections are stopped upon filing of the case, and a discharge can be expected within three months of a required meeting with creditors.

An attorney may be helpful in addressing issues such as a shortfall in spending allowances, assisting in the collection of supporting data and documents needed to explain why the standards are insufficient. Additionally, an attorney may assist in addressing the pros and cons of considering Chapter 7 rather than other forms of personal bankruptcy.

Source: The United States Department of Justice, "Means Testing", October 21, 2014

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