Chapter 13 Bankruptcy Laws in Texas

• A Texas debtor may use Chapter 13 bankruptcy to repay his debts.ranch fence shadows image by Stormy Ward from Fotolia.com
  
  Unlike most other states, the state of Texas gives Chapter 7 bankruptcy filers a generous homestead exemption. A home is the most valuable asset most people own, so the fact that Texas lets virtually anyone filing for Chapter 7 keep their homes may make Texas residents less likely to opt for Chapter 13. A debtor can choose to file for Chapter 13, but the federal bankruptcy code requires that debtors qualify for Chapter 7 bankruptcy.
  
  

Means Test

• A debtor qualifies for Chapter 7 bankruptcy by passing the means test. Means testing compares the debtor’s family income to the Texas median family income. The median family income of Texas has been listed as: single earner, $38,801; family of two, $55,660; family of three, $59,011 and family of four, $66,145. Add $7,500 for each family member in excess of four. If the debtor’s family income is less than the state median, the debtor can file for Chapter 7 bankruptcy. If the debtor’s family income is more the state median, the debtor needs to calculate his disposable income.
  
  The debtor’s monthly disposable income is calculated by subtracting the debtor’s allowed monthly expenses from the debtor’s monthly income. If his monthly disposable income is less than $100, he can file for Chapter 7. If his monthly disposable income is over $100, but would not be enough to pay at least 25 percent of his debts over the next 60 months, the debtor can file for Chapter 7.
  
  

Failing Means Test

• The debtor must file for Chapter 13 bankruptcy when his monthly disposable income is over $100 and that amount of disposable income would be enough to pay 25 percent of his debt over the next 60 months. The debtor’s disposable income will be paid to his creditors. In a Chapter 13 bankruptcy case, a debtor repays his debt over a span of three to five years. The means test determines the length of time the debtor will spend repaying his debts. If the debtor’s income is below the Texas state median income, the debtor’s repayment plan will span three years. If the debtor’s income is above the Teas state median income, the debtor’s repayment plan will span five years.
  
  

The Plan

• The debtor must propose a repayment plan when filing or within 15 days of filing the Chapter 13 petition. The court must confirm this plan. A trustee will be appointed to the debtor’s case and the trustee will be the intermediary between the debtor and his creditors. The trustee will accept one plan payment each month and disburse payment to each of the debtor’s creditors, according to the terms of the plan. If the debtor makes all plan payments and meets other obligations, the debtor will receive a discharge.