“Credit Counseling”

The Bankruptcy Act of 2005 makes it a requirement for individuals filing for bankruptcy after 10/17/2005 to participate in credit counseling. The debtors must do this within six months prior to filing for bankruptcy. Debtors are also required to pass a course on financial management after the bankruptcy filing.

“Means Test”

According to the 2005 Bankruptcy Act, your expenses and income must be analyzed to establish whether you can file a Chapter 7 bankruptcy or a Chapter 13. Courts will examine your income over the six month period before you filed and those numbers are then compared to the average income in Texas. If your income is less than the average Texas income, you will be permitted to file for Chapter 7 bankruptcy. If it is found that your income is above average Texas income, the means test will continue and the results will establish if you are eligible to file Chapter 7 bankruptcy or if you have to file Chapter 13 bankruptcy.

If you are unable to pay $100 per month towards your debts for the next 5 years (totaling $6,000), you may still be able to file a Chapter 7 bankruptcy. If it is determined that you can afford to pay at least $166.67/month over the next 5 years ($10,000), it is likely that you will be denied a Chapter 7 bankruptcy filing.

If your budget is somewhere between the $6,000 and $10,000 in the next 5 years, more computation will have to be done to determine the probability of a successful Chapter 7 filing. For example, if you can afford to pay off at least 25% of your unsecured debt, you will probably be denied a Chapter 7. In the event that you can not pay 25% of your unsecured debt, you should be eligible for the Chapter 7. For example, an ‘unsecured debt’ would be credit debts and medical bills. If you do qualify to file a Chapter 7 bankruptcy, you still have the option to file a Chapter 13 if desired.