How to determine if you qualify for Chapter 7 Bankruptcy (Louisiana and Texas)
Chapter 7 is the most common form of bankruptcy in the U.S., but it can be difficult to qualify for. This guide will help you determine if you can qualify!
Qualify through simple income calculationThe most straight forward way to qualify for Chapter 7 is to demonstrate that you have a lower household income than the average household of the same size in your state. As of the date of this guide, a single person household in Louisiana qualifies for Chapter 7 if their annual income is less than $47,488. In Texas, that same household would have to have an annual income of less than $52,953. This income is calculated by taking the total pre-tax income of the prior six months and multiplying it by two.
Qualify through the means testIf your income exceeds the state average, its not over yet! You can also qualify by showing that you have insufficient income to support a reasonable debt payment over 5 years. Don't take this calculation lightly, it is extremely complicated and is best done by a competent attorney. Many people who make substantially more than the average household income of their state are able to qualify using this long form test. If you pass this test, your case is considered to not be presumptively abusive. Failing will make the filing presumptively abusive of the bankruptcy code.
Qualify by having special circumstancesEven if you fail the means test and a presumption of abuse is found you can, in special circumstances, demonstrate that the Court should consider additional factors to overcome the presumption. This could be something like loss of a better paying job, seasonal income artificially inflating your means test result, or special expenses not normally considered in the means test. These circumstances are fairly rare, and are often disputed by the Department of Justice. If you think you will need to overcome a presumption of abuse, it is imperative you have adequate legal counsel to have the best chance at success.
Qualify for an exemption from the means testThere are two grounds for getting an exemption from the means test (which means it doesn't apply to you!):
1) If over 50% of your debt can be demonstrated as having been incurred for a non-consumer purpose (like a failed business), or
2) Being a disabled veteran (this is fairly narrowly defined)
Both of these exemptions are great, but because they allow for an avoidance of the means test the Department of Justice is very thorough in determining that a person qualifies for the exemption. Once again, these issues are best handled by competent legal counsel.
What if I don't qualify?If you still don't qualify, there is still hope! Chapter 7 isn't the only chapter of bankruptcy, and for many it isn't even the best chapter. Most bankruptcy lawyers are happy to give a short consultation to see if there is something they can do to help, so don't be afraid to see assistance.
Other things to keep in mindDon't forget that, at the end of the day, Chapter 7 is a liquidation. While there are many powerful federal and state laws protecting assets, a Chapter 7 may result in you losing something you don't want to lose. Always consult with an attorney before proceeding with a Chapter 7. This is especially important because a Chapter 7 may be voluntary to start, but a Court is not required to let you out once you file. Making sure that it is the right move before you make it is critically important to this decision! I can't say it enough - contact a lawyer to help you make the right decision and be successful in your case.