This assessment determines whether an individual seeking bankruptcy protection in Texas qualifies for Chapter 7 liquidation or if they are required to file under Chapter 13 reorganization. It compares the filer’s average gross income over the six months prior to filing with the median income for a household of similar size in Texas. If the income is below the state median, the individual generally qualifies for Chapter 7. However, if the income exceeds the median, further calculations are required to determine disposable income and ability to repay debts. These further calculations involve subtracting allowed expenses from the gross income to determine if the individual has sufficient income to fund a Chapter 13 repayment plan.
This process is critical to the bankruptcy system as it aims to prevent abuse by individuals who could otherwise repay their debts. It ensures that bankruptcy is reserved for those genuinely unable to meet their financial obligations without court intervention. The application of this income qualification mechanism has evolved over time, reflecting adjustments to the Bankruptcy Code and evolving economic conditions. Its consistent application promotes fairness and consistency within the bankruptcy system.
