Chapter 7 Bankruptcy Means Test in Austin, Texas

The bankruptcy means test was introduced by Congress in 2005 to prevent higher-income debtors from using Chapter 7 when they have the ability to repay some of what they owe. It is a two-part income and expense analysis, and understanding how it applies to your specific situation requires more than plugging numbers into a calculator. Income timing, household size, and allowable expense categories all affect the outcome — and bankruptcy attorneys run the analysis as part of every initial consultation.

Part one of the means test compares your current monthly income — calculated as the average of income received in the six calendar months before the filing date — to the Texas median income for a household of your size. The U.S. Trustee Program updates these figures periodically. If your average monthly income is at or below the median, you pass the means test automatically and can file Chapter 7 without completing Part Two.

Part two applies only if your income exceeds the Texas median. It compares your disposable income — income after subtracting IRS national and local expense allowances and certain actual expenses — to a monthly threshold. If your disposable income is below the threshold, you still qualify for Chapter 7. The IRS expense standards are separate from your actual expenses and are a common source of confusion for debtors who try to run the analysis themselves.

The income figure used in the means test is not the same as your current income. It is the average of income received in the six full calendar months before filing — all sources, including regular employment, self-employment, rental income, child support, and alimony. A debtor who recently lost a job but had high income in the previous six months may fail the means test even though their current income is zero. Conversely, a debtor who recently took a significant pay cut may pass the means test based on the six-month average.

Household size is a legally defined concept for means test purposes and is not simply who lives in your home. It encompasses all people who rely on you financially, which can include family members who do not live with you. A larger household size increases the income threshold — meaning you can earn more and still pass Part One. An attorney determines your correct household size before running the means test.

We connect Austin residents who want to understand their bankruptcy options with attorneys who run the means test as part of an initial consultation — along with a full assessment of your debts, your assets, and which chapter produces the best outcome for your situation.