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What to Expect

Under Chapter 7, the court will appoint a trustee through the U.S. Trustee’s office. The Trustee will investigate your financial affairs, take control of your non-exempt property, and liquidate the non-exempt property to pay your creditors.[1] Not all of your property is necessarily subject to the Trustee’s control. State and federal law allow you to keep certain property, known as “exempt property.” Exempt property is not subject to be sold by the Trustee. Some common examples of exempt property include your home, your car, clothing, and other household items.[2] What exemptions you may be able to claim will be based on the facts and circumstances of your situation, and is not the same for all individuals.

Chapter 7 is for individuals who (a) have financial difficulty preventing them from paying their debts and (b) are willing to allow their non-exempt property to be used to pay their creditors.[1] The primary purpose of a Chapter 7 Bankruptcy is to have your debts discharged.

In order to file for bankruptcy protection under Chapter 7, you may have to pass the Texas “means test.” If your annual income is below the median income level for your household size, you are exempt from the means test and are qualified to file for Chapter 7 Bankruptcy protection. You can use the chart below to determine whether you are automatically eligible to file under Chapter 7 without passing the means test:

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Texas Means Testing

Household SizeMonthly IncomeAnnual Income
For each family member over 4, add $9,000 to the annual income

If your annual income is above median income level for your household size, you still may qualify to file for Chapter 7, but you must pass the means test. The means test generally takes into account your expenses as well as your income to determine whether there is any amount available to pay unsecured claims. If your income is below the median income for your household size after application of the means test, you are eligible to file under Chapter 7.

After the Trustee investigates the circumstances that led you to bankruptcy, and takes the steps above, your debts are forgiven. It is important to remember, though, that not all debts can be forgiven. Some of the most common types of debts that cannot be discharged include: most taxes; most student loans; most domestic support and property settlement obligations; fines, penalties, forfeitures, and criminal restitution; and certain debts not listed in your bankruptcy petition.[3] You should also be aware that liens on property, such as a home or car, may still be enforced after a Chapter 7 discharge. In other words, a creditor may have the right to foreclose a home mortgage or repossess an automobile.[4]

It is important to consult an attorney familiar with bankruptcy law before filing a petition. Contact us today for a free consultation regarding whether you qualify for bankruptcy protection, and which Chapter is right for you. Book a free consultation today.

[1] See Texas Young Lawyers’ Association, Resources for Lawyers Assisting Veterans at 2-4,July 2010, (.pdf download).

[2][4] See Official Bankruptcy Form 2010.