Many people consider bankruptcy as something businesses do when facing financial trouble, rather than an option for individuals. Yet many people in Texas and throughout the United States file for personal bankruptcy, typically Chapter 13 and Chapter 7 bankruptcy, when faced with mounting debt loads. While this is not the best option for everyone dealing with financial hardship, it is a good idea for people to understand the basics of personal bankruptcy in case they need to make this decision in the future.

There are a few things that need to be in place before a person can legally file for Chapter 7 or Chapter 13 bankruptcy. For example, a person must prove that he or she has tried to reach a payment plan with creditors. Bankruptcy is not always a personal decision; occasionally, a creditor or agency can petition the court to impose a bankruptcy on a person holding debt.

Chapter 7 bankruptcy involves liquidating assets and using the money from those assets to pay off the maximum amount of debt possible. To file for Chapter 7 bankruptcy, a person must pass a “means test.” This involves proving that a person’s income is insufficient.

If a court finds that a person passed the “means test,” that person will be able to file for Chapter 7 bankruptcy and will only have to use the value of his or her assets to pay down debt and will not need to use wages. If a court considers the income sufficient based on the means test, then the individual will need to file for Chapter 13 bankruptcy which involves a three to five year payment plan. To understand these types of personal bankruptcy and the legal process in Texas, people considering bankruptcy should reach out to a lawyer who focuses on bankruptcy law.

Source: USA Today, “Thinking of filing for personal bankruptcy? Here is how it works“, Judith Ohikuare, May 5, 2018