Not everyone can file for Chapter 13 bankruptcy. There’s a means test that determines whether your income qualifies you for this type of debt reorganization. Understanding how it works can save you a lot of headaches down the road.
What The Means Test Actually Measures
The Chapter 13 means test compares your income to the median income levels in Texas. Pretty straightforward so far. If you’re earning less than the state median for a household your size, you automatically qualify. The calculation uses your average monthly income from the six months before you file. Not just what you’re making right now. When you earn above the median, things get more involved. The bankruptcy court examines your disposable income after subtracting allowed expenses. This calculation determines whether you’re eligible and sets how much you’ll pay creditors through your repayment plan.
Income Sources That Count
The means test looks at more than your salary. You’ve got to include these income sources:
- Wages and tips
- Business income
- Rental property income
- Retirement distributions
- Unemployment benefits
- Social Security (in most cases)
Regular contributions from family or friends also count. The court wants a complete picture of money coming into your household, regardless of where it’s from. You can’t leave things out just because they don’t feel like traditional income.
Current Texas Median Income Levels
Texas median income figures change every year. A Waco Chapter 13 bankruptcy lawyer can give you current numbers, but it helps to understand the household size categories. The U.S. Trustee Program publishes updated figures that courts use when evaluating cases. Single filers face different thresholds than married couples. Families with children have higher benchmarks. Each additional household member raises the median income number you’re measured against.
When You’re Over The Median
Earning more than the median doesn’t automatically disqualify you. The second part of the means test subtracts allowable expenses from your income. These deductions include:
- Mortgage or rent payments
- Vehicle payments
- Certain tax obligations
- Childcare costs
- Health insurance premiums
The IRS establishes standard allowances for many expense categories. Your actual spending might be different, but the means test uses predetermined amounts for consistency across cases.
Calculating Disposable Income
After you subtract allowed expenses, your remaining disposable income determines how your repayment plan gets structured. Higher disposable income typically means larger monthly payments to creditors over the three to five-year plan period. The court expects you to commit all disposable income to the plan. This requirement makes sure unsecured creditors receive as much as possible while you keep your assets and catch up on secured debts. It’s about balance.
Common Means Test Mistakes
People often miscalculate their income by using the wrong time period. Or they forget about irregular income sources. Bonus payments, tax refunds, and sporadic freelance work can throw off your calculations if you’re not careful. Another frequent error? Claiming non-allowable expenses. The means test doesn’t care what you actually spend on groceries or gas. It uses standardized expense amounts instead, which might be higher or lower than what you’re really spending each month.
Why Accurate Numbers Matter
Getting the means test wrong can derail your entire bankruptcy case. Underreporting income looks like fraud. Nobody wants that. Overreporting might push you into Chapter 7 when Chapter 13 would’ve been better for protecting your assets. The trustee reviewing your case will scrutinize your means test form closely. Supporting documentation like pay stubs, tax returns, and bank statements must match your reported figures. They’re going to check.
Working With Legal Guidance
Leinart Law Firm helps Texas residents figure out whether Chapter 13 makes sense for their financial situation. We can review your specific income and expenses before you file, which saves time and stress. The means test might seem straightforward at first glance, but small details make a big difference in how your case proceeds. Professional guidance helps you use the right numbers and take advantage of all allowable deductions. Getting this calculation right from the start sets the foundation for a successful repayment plan and eventual debt discharge.
