The Means Test: Do You Qualify?

Not everyone can file Chapter 7. Under Section 707(b) of the Bankruptcy Code, individual debtors with primarily consumer debts must pass the "means test" to qualify. The means test is Congress's mechanism for ensuring that Chapter 7 is reserved for debtors who genuinely cannot repay their debts, rather than those who simply prefer to discharge them.

The test has two steps. First, your household income over the six calendar months preceding your filing is compared to the median income for a household of your size in Texas. If your income is at or below the Texas median, you pass the means test, and Chapter 7 is presumptively available. As of 2025, the Texas median income for a single filer is approximately $58,000; for a family of four, it's approximately $103,000. These figures are updated periodically and should be verified at the time of filing.

If your income exceeds the median, the analysis doesn't stop there. The second step applies the IRS's Allowable Living Expense standards — the same standards used in IRS collection cases, along with your actual secured debt payments, priority debt payments, and certain other expenses to determine whether you have sufficient disposable income to fund a meaningful Chapter 13 repayment plan. If the calculation shows that your disposable income is below the statutory threshold, you still pass the means test. If it's above the threshold, a presumption of abuse arises, and you may be directed to Chapter 13 instead.

The means test is mechanical; it's a formula, not a judgment call. But the inputs matter. Which household members are included, how income is calculated over the look-back period, which expenses are allowable, and how secured debt payments are counted can all affect the outcome. A competent bankruptcy attorney can often identify legitimate adjustments that change the result.

What Chapter 7 Eliminates, and What It Doesn't

Chapter 7 discharges most unsecured debts. This includes credit card balances, medical bills, personal loans, payday loans, deficiency balances after a foreclosure or repossession, past-due utility bills, and most civil judgments. Once the discharge order is entered, these debts are gone permanently. The creditors cannot contact you, sue you, garnish your wages, or take any other collection action.

But certain debts survive a Chapter 7 discharge. Understanding what is not dischargeable is just as important as understanding what is. The most significant non-dischargeable debts include most tax debts, though some older tax debts may be discharged if they meet the timing requirements under the three-year, two-year, and 240-day rules. Student loans are generally non-dischargeable unless you can demonstrate undue hardship under the Brunner test, which is an extremely difficult standard to meet. Domestic support obligations, child support, and alimony survive bankruptcy. Debts incurred through fraud, embezzlement, or willful and malicious injury are not dischargeable. Fines, penalties, and restitution owed to government entities are not dischargeable. And any debt you fail to list on your bankruptcy schedules may not be discharged.

For clients with significant tax debt, the interaction between bankruptcy and tax law is where the analysis gets complex and where the JD/CPA combination at North Star Law provides a distinct advantage. Determining whether a specific tax liability is dischargeable requires analyzing the assessment date, the filing date, the due date of the return, and whether the IRS has filed a substitute for return, each of which affects a different prong of the dischargeability analysis. Many general-practice bankruptcy attorneys don't perform this analysis with the level of detail required, and the result is that clients either file Chapter 7, expecting their tax debt to be discharged when it won't be, or they avoid filing altogether because they incorrectly assume none of their tax debt qualifies.

Texas Exemptions: What You Keep

Texas is one of the most debtor-friendly states in the country when it comes to bankruptcy exemptions. The exemptions determine which assets are protected from the trustee and which are available to pay creditors. In Texas, the following property is exempt:

Your home. The Texas homestead exemption under Section 42.001 of the Texas Property Code is unlimited in value for your primary residence, subject only to acreage limits — 10 acres for urban property and 100 acres for a single filer or 200 acres for a family on rural property. This means that regardless of how much equity you have in your home, it is protected in a Chapter 7 case as long as it meets the acreage requirements. This is one of the most generous homestead protections in the United States.

Your retirement accounts. IRAs, 401(k) plans, 403(b) plans, pensions, and most other qualified retirement accounts are fully exempt under both federal and Texas law. The funds in these accounts cannot be reached by the trustee or your creditors.

Your personal property. Texas allows exemptions for up to $50,000 in personal property for a single filer or $100,000 for a family. This covers clothing, furniture, food, farming or ranching equipment, tools of the trade, and other personal items. Two motor vehicles are exempt if they are used for personal, family, or household purposes. Life insurance and annuities are also protected.

Your wages. Current wages for personal services are exempt under Texas law, which means the trustee cannot take your paycheck. However, once wages are deposited into a bank account, the analysis becomes more fact-specific depending on whether the funds are traceable to exempt sources.

For most Texas filers, these exemptions cover everything they own. This is why the majority of Texas Chapter 7 cases are no-asset cases — there is nothing for the trustee to liquidate. You file, you complete the required credit counseling course, you attend the 341 meeting of creditors, and approximately 60 to 90 days later, you receive your discharge order. Your debts are eliminated and you keep all of your property.

The Automatic Stay: Immediate Protection

The moment your bankruptcy petition is filed with the court, the automatic stay under 11 U.S.C. § 362 takes effect. This is a federal injunction that immediately halts virtually all collection activity against you. Foreclosure proceedings are stopped. Wage garnishments are stopped. IRS levies are stopped. Lawsuits are stayed. Creditor phone calls and letters must cease. Utility disconnections are paused for at least 20 days. The stay takes effect automatically; no motion is required, and no court order is needed.

For many clients, the automatic stay is the most immediate and tangible benefit of filing. If you're facing a foreclosure sale next week, a bank account levy tomorrow, or a wage garnishment that's already reducing your paycheck, filing a Chapter 7 petition stops all of it the instant the petition is filed with the court. This breathing room gives you and your attorney time to address the underlying situation through the bankruptcy process. Local Houston Expertise Matters

As a Houston-based law firm, we understand our community's unique financial challenges. From fluctuating energy sector employment to rising housing costs, we've helped countless Houston residents achieve financial freedom through Chapter 7 bankruptcy.

The Chapter 7 Process

The Chapter 7 process has several defined steps, and while bankruptcy law is complex, the timeline is relatively predictable.

Before filing, you must complete a credit counseling course from an approved provider. This is a federal requirement and must be completed within 180 days before filing. The course takes approximately one to two hours and can be completed online.

Your attorney prepares the petition, schedules, and statements that make up the bankruptcy filing. This includes a detailed listing of all your assets, all your debts, your income and expenses, your recent financial transactions, and other required disclosures. Accuracy and completeness are critical — omitting assets or debts can result in denial of your discharge or criminal penalties.

After filing, a Chapter 7 trustee is assigned to your case. The trustee's job is to review your filing, examine your assets, and determine whether there is any non-exempt property to liquidate for the benefit of creditors. Approximately 30 to 45 days after filing, you attend the 341 meeting of creditors, a brief hearing where the trustee and any creditors who appear can ask you questions about your financial affairs. In most consumer Chapter 7 cases, this meeting lasts 5 to 10 minutes.

After the 341 meeting, you complete a second required course — the debtor education course — and file the certificate of completion with the court. Assuming no objections are filed and no issues arise, the court enters your discharge order approximately 60 to 90 days after the 341 meeting. The entire process, from filing to discharge, typically takes four to six months.

Flat-Fee Pricing and Payment Plans

We understand that if you're considering bankruptcy, your finances are already strained. That's why North Star Law handles Chapter 7 cases on a flat-fee basis. You'll know your total legal fee before we file, with no hourly billing, no charges for phone calls or emails, and no surprise invoices. The fee covers the entire case from preparation through discharge.

We also offer payment plans so that the cost of filing doesn't prevent you from getting the relief you need. The filing fee paid to the court is separate from our legal fee and is set by the bankruptcy court — currently $338 for a Chapter 7 case — but even the court filing fee can be paid in installments with court approval in cases of financial hardship.

During your free initial consultation, we'll evaluate your situation, explain whether Chapter 7 is the right option, and provide a specific fee quote for your case. There's no obligation and no pressure. If Chapter 7 isn't right for you, we'll tell you that too.

When Chapter 7 Isn't the Right Choice

Chapter 7 is a powerful tool, but it's not the right answer for everyone. If you're behind on your mortgage and you want to keep your home, Chapter 7 won't help you catch up on the missed payments — Chapter 13 will. If you have significant non-dischargeable tax debt, Chapter 13 may allow you to repay it over three to five years at zero interest while you're protected from IRS collection. If you have non-exempt assets you want to keep, Chapter 13 lets you retain them as long as your plan pays unsecured creditors at least as much as they'd receive in a Chapter 7 liquidation.

If your income exceeds the means test threshold and you have disposable income available for debt repayment, Chapter 13 may be your only option. And if you've received a Chapter 7 discharge within the past eight years, you're not eligible for another one.

The choice between Chapter 7 and Chapter 13 has consequences that last for years. Filing under the wrong chapter can mean the difference between keeping your home and losing it, between eliminating your tax debt and carrying it through to the other side, and between completing the process in four months or committing to five years of payments. At North Star Law, we analyze every client's situation across all available options before recommending a path — because the best bankruptcy is the one that actually solves your problem.

Chapter 7 bankruptcy is the most direct path to eliminating debt under federal law. It's a liquidation bankruptcy, meaning a court-appointed trustee reviews your assets, determines which ones are protected by applicable exemptions, and sells any non-exempt property to pay creditors. The remaining eligible debts are discharged, legally eliminated, and you owe nothing further. The entire process typically takes four to six months from filing to discharge.

In practice, however, the vast majority of Chapter 7 cases in Texas are "no-asset" cases. This means the debtor's property is fully covered by available exemptions, and there is nothing for the trustee to sell. Texas provides some of the most generous exemptions in the country, including an unlimited homestead exemption for urban property up to 10 acres and rural property up to 100 acres for a single filer or 200 acres for a family. Your retirement accounts are fully exempt. Your personal property is protected up to generous statutory limits. For many Texas filers, a Chapter 7 case results in the complete elimination of unsecured debt, credit cards, medical bills, personal loans, and deficiency balances, without losing any property at all.

At North Star Law, we handle Chapter 7 cases from the initial consultation through discharge. As both a licensed attorney and a CPA, Phillip Zagotti evaluates not just whether you qualify for Chapter 7, but whether it's the right strategic choice for your situation. Some clients who qualify for Chapter 7 are better served by Chapter 13. Others have tax debts or other obligations that won't be discharged regardless of which chapter they file. The analysis matters, and getting it right before you file is the most important step in the process.

Chapter 7 Bankruptcy